Do Managers Do Good with Other Peoples' Money?

49 Pages Posted: 20 Nov 2011 Last revised: 7 Oct 2020

See all articles by Ing-Haw Cheng

Ing-Haw Cheng

Dartmouth College - Tuck School of Business

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Kelly Shue

Yale School of Management; National Bureau of Economic Research (NBER)

Date Written: October 2, 2020

Abstract

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.

Keywords: ESG, CSR, agency costs

JEL Classification: G30, G31, G35

Suggested Citation

Cheng, Ing-Haw and Hong, Harrison G. and Shue, Kelly, Do Managers Do Good with Other Peoples' Money? (October 2, 2020). AFA 2013 San Diego Meetings Paper, UCD & CalPERS Sustainability & Finance Symposium 2013, Fama-Miller Working Paper, Chicago Booth Research Paper No. 12-47, Available at SSRN: https://ssrn.com/abstract=1962120 or http://dx.doi.org/10.2139/ssrn.1962120

Ing-Haw Cheng

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Harrison G. Hong (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kelly Shue

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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