Corporate Social Responsibility and Shareholder-Stakeholder Conflict: Evidence from a Quasi-Natural Experiment

Abstract

We analyze the impact of the staggered adoption of state-level constituency statutes on corporate social responsibility (CSR), and the value implication of adjusting CSR engagement in response to the adoption of constituency statutes. The constituency statutes allow firms to consider interests of non-shareholder stakeholders and provide firms with discretion as to how stakeholder interests are considered. We find that firms respond to the adoption of constituency statutes by increasing CSR engagement. Besides, the positive impact of constituency statutes on CSR engagement is more pronounced for firms that distribute more cash to shareholders. In addition, we find that increased CSR engagement after the adoption of constituency statutes leads to increases in firm valuation, especially for firms that have a poorer information environment. This indicates that CSR engagement can mitigate the conflict between shareholders and stakeholders by promoting the interests of both parties. Taken together, our paper highlights the efficacy of stakeholder orientation in CSR and provides supporting evidence for the shareholder wealth maximization perspective of CSR.

Keywords: Corporate Social Responsibility, Constituency Statues, Shareholder-Stakeholder Conflict, Stakeholder Orientation

JEL Classification: M4, M14, G14, G38