The Information Value of Corporate Social Responsibility
56 Pages Posted: 12 Feb 2018 Last revised: 1 Oct 2019
Date Written: April 12, 2018
Using a simple cheap-talk game, we theoretically demonstrate that corporate social responsibility (CSR) helps mitigate the CEO-board information asymmetry, leading to more informed advising and monitoring by the board. By optimally engaging in CSR, the board can take advantage of stakeholder information revelation and reduce its informational dependence on the CEO, which enables the shareholders to choose an ex ante higher level of board independence. For a sample of U.S. firms between 1999 and 2013, we find strong support for this strategic complementarity between board independence and the information value of CSR. Our results highlight a novel rationale for CSR – the information motive.
Keywords: Corporate social responsibility, stakeholder information revelation, cheap-talk game, endogenous information acquisition
JEL Classification: D8, G3, M14
Suggested Citation: Suggested Citation