Corporate Social Responsibility and Imperfect Regulatory Oversight: Theory and Evidence from Greenhouse Gas Emissions Disclosures

68 Pages Posted: 7 Dec 2020 Last revised: 18 Nov 2021

See all articles by Jean-Etienne de Bettignies

Jean-Etienne de Bettignies

Queen's University - Smith School of Business

Hua Fang Liu

Brandon University

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

This paper develops and tests a model in which 1) purpose-driven firms emerge as an optimal organizational form even for profit-maximizing entrepreneurs; and 2) CSR arises endogenously as a response to imperfect regulatory oversight. Purpose-driven organizations allow entrepreneurs to create rents for socially responsible (e.g. environmentally concerned) workers by allowing them to reduce the negative externalities (e.g. pollution) that would be generated without them, and to extract these rents through lower wages. Through this rent extraction entrepreneurs internalize the pro-social preferences of their responsible workers, and in turn engage in CSR through self-regulation, provided that regulatory oversight is poor enough - and hence regulation is loose enough - to make self-regulation worthwhile. The key prediction of the model is a negative impact of regulatory oversight on CSR activity. To test this, we exploit the UK's 2012 decision to mandate greenhouse gas emissions disclosure in all public firms. Consistent with our theory, we find that firms in the UK receive lower CSR ratings after increased regulatory oversight compared to firms from the other 15 European countries which did not experience mandatory disclosure requirements. We also perform a number of robustness checks and explore the interaction between oversight, wages and CSR. These empirical findings provide further support for the model.

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Suggested Citation

de Bettignies, Jean-Etienne and Liu, Hua Fang and Robinson, David T., Corporate Social Responsibility and Imperfect Regulatory Oversight: Theory and Evidence from Greenhouse Gas Emissions Disclosures (December 2020). Available at SSRN: https://ssrn.com/abstract=3743891 or http://dx.doi.org/10.2139/ssrn.3743891

Jean-Etienne De Bettignies (Contact Author)

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Hua Fang Liu

Brandon University ( email )

Brandon, Manitoba
Canada

David T. Robinson

Fuqua School of Business, Duke University ( email )

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Durham, NC 27708-0120
United States
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National Bureau of Economic Research (NBER)

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Duke Innovation & Entrepreneurship Initiative ( email )

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