Do Managers Do Good with Other Peoples' Money?

73 Pages Posted: 20 Nov 2011 Last revised: 14 May 2016

Ing-Haw Cheng

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)

Kelly Shue

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: April 25, 2016

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: corporate social responsibility, 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? (April 25, 2016). AFA 2013 San Diego Meetings Paper; Fama-Miller Working Paper; UCD & CalPERS Sustainability & Finance Symposium 2013; 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

Tuck School of Business at Dartmouth ( 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

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://https://sites.google.com/site/kellyshue/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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