Exploring How Independent Directors View CSR Inequality Using A Quasi-Natural Experiment

Abstract

Purpose: Our purpose is to explore CSR inequality, which is the inequality across different CSR categories. Higher inequality suggests a less balanced CSR policy. To determine if CSR inequality is beneficial or harmful, we investigate how independent directors view CSR inequality, using an exogenous regulatory shock introduced by the passage of the Sarbanes-Oxley Act.

Design: To draw causality, we rely on a quasi-natural experiment based on an exogenous regulatory shock that forced certain firms to raise board independence. This approach is significantly less vulnerable to endogeneity and is much more likely to show a causal effect. We also confirm our results using propensity score matching, principal component analysis, and instrumental-variable analysis.

Findings: Our difference-in-difference estimates show that independent directors view CSR inequality unfavorably. Specifically, board independence diminishes CSR inequality by approximately 34-43%. Because our empirical strategy is based on a quasi-natural experiment, our results are more likely to show causality. Our results also imply that CSR inequality is a crucially important aspect of CSR.

Originality: Although a substantial volume of research has examined CSR, one vital aspect of CSR has been largely unexplored. Filling this void in the literature, we investigate CSR inequality. Our study is the first to explore how independent directors view CSR inequality using a quasi-natural experiment.

Keywords: CSR, board independence, independent directors, corporate social responsibility

JEL Classification: G33