Do Managers Do Good with Other Peoples' Money?
Tuck School of Business at Dartmouth
Harrison G. Hong
Princeton University - Department of Economics; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
September 8, 2014
AFA 2013 San Diego Meetings Paper
UCD & CalPERS Sustainability & Finance Symposium 2013
Fama-Miller Working Paper
Chicago Booth Research Paper No. 12-47
We find support for three key predictions of an agency motive for corporate social responsibility. First, increasing insider ownership decreases measures of firm goodness. We use the 2003 Dividend Tax Cut to increase after-tax insider ownership. Firms with moderate levels of insider ownership cut goodness by more than firms with low levels (where the tax cut has no effect) and high levels (where agency is less of an issue). Second, improved governance reduces corporate goodness. A regression discontinuity design of close votes around the 50% cut-off finds that passage of shareholder governance proposals leads to slower growth in goodness. Finally, we validate our results by showing that another measure of corporate perks, use of corporate jets, is correlated with corporate goodness and reacts similarly to shocks to governance.
Number of Pages in PDF File: 47
Keywords: corporate social responsibility, agency costs
JEL Classification: G30, G31, G35
Date posted: November 20, 2011 ; Last revised: March 6, 2015
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