Do Managers Do Good with Other Peoples' Money?
Tuck School of Business at Dartmouth
Harrison G. Hong
Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
April 25, 2016
AFA 2013 San Diego Meetings Paper
UCD & CalPERS Sustainability & Finance Symposium 2013
Fama-Miller Working Paper
Chicago Booth Research Paper No. 12-47
We show that spending on corporate social responsibility (CSR) is due partly to agency problems. Using the 2003 Dividend Tax Cut, which increased after-tax insider ownership, we find that firms with moderate levels of insider ownership cut CSR by more than firms with low levels (where the tax cut has no effect) and high levels (where agency is less of an issue). Moderate insider-ownership firms experienced larger increases in valuation. Similar insights hold in a regression-discontinuity design of close votes on shareholder-governance proposals. Individuals did not offset CSR cuts with private giving, suggesting a trade-off between governance and public goods.
Number of Pages in PDF File: 73
Keywords: corporate social responsibility, agency costs
JEL Classification: G30, G31, G35
Date posted: November 20, 2011 ; Last revised: May 14, 2016