The Cost (and Unbenefit) of Conscious Capitalism

63 Pages Posted: 20 Sep 2021

See all articles by Jitendra Aswani

Jitendra Aswani

Fordham University

Alona Bilokha

Fordham University

Mingying Cheng

Fordham University - Gabelli School of Business

Benjamin M. Cole

Fordham University

Date Written: September 16, 2021

Abstract

This paper examines the costs and benefits of ‘stakeholder governance’ for shareholders and other stakeholders by using the adoption of constituency statutes as a quasi-exogenous shock to corporate governance. Constituency statutes permit board members to consider all stakeholder interests, relaxing fiduciary duty to only shareholders. Using a sample of U.S. publicly traded firms (1981-2010) and employing a difference-in-difference methodology, we find that the discretionary adoption of ‘stakeholder governance’ leads to managerial entrenchment and a reduction in institutional ownership and shareholder wealth with little to no ‘trade-off’ benefits to other stakeholders. As states adopted constituency statutes, signs of managerial entrenchment increased (proxied by significant declines in earnings transparency and jumps in CEO and Director compensation) as did harm to shareholder wealth and to governance through institutional ownership. At the same time, we do not observe potential ‘trade-off’ benefits to the non-shareholder stakeholders these statutes were intended to help; we find that labor, customers, and creditors only marginally benefited (if at all) from the introduction of these statutes. These results are robust to a battery of checks including the biasedness in the staggered DiD estimator.

Keywords: Conscious Capitalism, Stakeholder Governance, Managerial Accountability, Corporate Transparency, Constituency Statutes

JEL Classification: G30, L51

Suggested Citation

Aswani, Jitendra and Bilokha, Alona and Cheng, Mingying and Cole, Benjamin M., The Cost (and Unbenefit) of Conscious Capitalism (September 16, 2021). Available at SSRN: https://ssrn.com/abstract=3926335 or http://dx.doi.org/10.2139/ssrn.3926335

Jitendra Aswani (Contact Author)

Fordham University ( email )

113 West 60th Street
Bronx, NY 10458
United States
9176055492 (Phone)

Alona Bilokha

Fordham University ( email )

New York, NY 10023
United States

Mingying Cheng

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

Benjamin M. Cole

Fordham University ( email )

45 Columbus Ave., Ste 522
New York, NY 10023
United States
646-312-8261 (Phone)
646-312-8295 (Fax)

HOME PAGE: http://www.bnet.fordham.edu/bmcole/

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