73 Pages Posted: 20 Nov 2011 Last revised: 14 May 2016
Date Written: April 25, 2016
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: 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