How Do Independent Directors View Corporate Social Responsibility (CSR)? Evidence from a Quasi-Natural Experiment

58 Pages Posted: 1 Oct 2020

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

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

Shenghui Tong

Central University of Finance and Economics (CUFE)

Napatsorn (Pom) Jiraporn

State University of New York (SUNY) - State University of New York (SUNY) at Oswego

Richard Proctor

Siena College

Date Written: August 17, 2020

Abstract

We investigate how independent directors view corporate social responsibility (CSR). Exploiting the passage of the Sarbanes-Oxley Act (SOX) and the associated exchange listing requirements as an exogenous regulatory shock, we document that independent directors view CSR activities unfavorably. In particular, firms forced to raise board independence reduce CSR engagement significantly relative to those not required to increase board independence. Our results are consistent with the risk-mitigation view and the agency cost hypothesis where managers over-invest in CSR to mitigate their own exposure to non-systematic risk. The over-investments in CSR are curbed in the presence of a stronger, more independent, board of directors. Several robustness checks confirm the results, including fixed-effects and random-effects regressions, dynamic panel data analysis, instrumental-variable analysis, and propensity score matching, Lewbel’s (2012) heteroscedastic identification, and Oster’s (2017) method for coefficient stability. We also confirm the risk-mitigation hypothesis by showing that CSR activities reduce firm risk significantly. Our research design is much less vulnerable to endogeneity and is therefore likely to show a causal effect of board independence on CSR.

Keywords: corporate social responsibility, CSR, board of directors, independent directors, Sarbanes-Oxley, quasi-natural experiment

JEL Classification: M14, G34, L51

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Tong, Shenghui and Jiraporn, Napatsorn (Pom) and Proctor, Richard, How Do Independent Directors View Corporate Social Responsibility (CSR)? Evidence from a Quasi-Natural Experiment (August 17, 2020). Available at SSRN: https://ssrn.com/abstract=3675278 or http://dx.doi.org/10.2139/ssrn.3675278

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

Shenghui Tong

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Napatsorn (Pom) Jiraporn

State University of New York (SUNY) - State University of New York (SUNY) at Oswego ( email )

7060 NY-104
Oswego, NY 13126-3599
United States

Richard Proctor

Siena College ( email )

Loudonville, NY
United States

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