The Effect of Corporate Governance on Corporate Social Responsibility (CSR): Evidence from the Institutional Shareholder Services (ISS)

37 Pages Posted: 22 Dec 2015

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: December 22, 2015

Abstract

Motivated by agency theory, we explore the effect of corporate governance quality on corporate social responsibility (CSR), using the governance standards provided by the Institutional Shareholder Services (ISS). Our evidence reveals that firms with more effective governance make significantly less investments in CSR. It appears that managers tend to over-invest in CSR and are forced to reduce CSR investments when corporate governance is more effective. In particular, an improvement in governance quality by one standard deviation translates into a decline in CSR investments by 7.16%. Our fixed-effects analysis also shows that, within firms, when governance quality improves over time, CSR investments decline significantly. Using the passage of the Sarbanes-Oxley Act of 2002 as an exogenous shock that improves the quality of corporate governance, we demonstrate that high-quality governance is not merely associated with, but rather brings about lower CSR investments.

Keywords: corporate governance, corporate social responsibility, CSR, ISS, agency theory

JEL Classification: G30, G34

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Kim, Young Sang and Kim, Jang-Chul, The Effect of Corporate Governance on Corporate Social Responsibility (CSR): Evidence from the Institutional Shareholder Services (ISS) (December 22, 2015). Available at SSRN: https://ssrn.com/abstract=2707001 or http://dx.doi.org/10.2139/ssrn.2707001

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand
66 (0) 2441 5090 (Phone)
66 (0) 2441 9745 (Fax)

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Accounting, Finance, and Business Law
Highland Heights, KY 41099
United States
859-572-1486 (Phone)

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