Do Managers Do Good with Other Peoples' Money?

77 Pages Posted: 20 Nov 2011 Last revised: 1 Mar 2023

See all articles by Ing-Haw Cheng

Ing-Haw Cheng

University of Toronto - Rotman School of Management

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: February 28, 2023

Abstract

There is mixed evidence on whether the marginal dollar spent on corporate social responsibility
is due to agency problems. We propose an approach by modeling how the 2003 Dividend Tax Cut, which increased after-tax insider ownership and better aligned managerial and shareholder interests, affected the marginal dollar spent on firm responsibility. We confirm key predictions of our agency model: following the tax cut, moderate insider-ownership firms experience larger declines in their responsibility ratings and increases in their valuations relative to other firms. We also confirm another implication regarding managerial misalignment using a regression-discontinuity design of close votes on shareholder-governance proposals.

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? (February 28, 2023). 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

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://inghawcheng.github.io

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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