Fiduciary Duty and Corporate Social Responsibility: Evidence from Corporate Opportunity Waiver

Abstract

Examining whether corporate social responsibility (CSR) aligns with shareholder interests or is a result of agency conflicts, we utilize the staggered adoption of state-level corporate opportunity waiver (COW) laws, which potentially weaken the fiduciary duty of loyalty of directors and officers and intensify agency conflicts. Employing a difference-in-differences analysis, we find a significant decrease in CSR after the adoption of COW laws. This decrease is more pronounced in firms with weaker corporate governance, more external opportunities for directors and officers, and less incentivized CEOs. Furthermore, we find that CSR positively influences firm valuation only in the states without COW. These findings support the value-enhancing perspective of CSR and highlight the importance of fiduciary duty of loyalty in driving CSR.

Keywords: Corporate opportunity waiver, Corporate social responsibility, Corporate governance

JEL Classification: G34, K22, M14