IDEAS home Printed from https://ideas.repec.org/a/eee/mulfin/v40y2017icp33-46.html
   My bibliography  Save this article

How does corporate social responsibility contribute to investment efficiency?

Author

Listed:
  • Samet, Marwa
  • Jarboui, Anis

Abstract

This paper examines the direct and indirect link between CSR performance and investment efficiency. Our panel dataset consists of 398 European companies listed in the STOXX Europe 600 during 2009–2014. Our first result shows that firms with high CSR performance invest more efficiently. Then, we perform our analysis distinguishing two alternative situations: underinvestment and overinvestment. Focusing on under-investing firms, we highlight that CSR performance enhances their investment levels through mitigating information asymmetry. In contrast, for over-investing firms, CSR performance reduces investment excess through mitigating free cash flow problems. Overall, these findings suggest a role for CSR in indirectly ameliorating firm-level investment efficiency through helping firms address agency problems and information asymmetry problems.

Suggested Citation

  • Samet, Marwa & Jarboui, Anis, 2017. "How does corporate social responsibility contribute to investment efficiency?," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 33-46.
    • Handle: RePEc:eee:mulfin:v:40:y:2017:i:c:p:33-46
    DOI: 10.1016/j.mulfin.2017.05.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042444X1730035X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.mulfin.2017.05.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Biddle, Gary C. & Hilary, Gilles & Verdi, Rodrigo S., 2009. "How does financial reporting quality relate to investment efficiency?," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 112-131, December.
    2. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
    3. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    4. Najah Attig & Sean Cleary & Sadok Ghoul & Omrane Guedhami, 2014. "Corporate Legitimacy and Investment–Cash Flow Sensitivity," Journal of Business Ethics, Springer, vol. 121(2), pages 297-314, May.
    5. Kiridaran Kanagaretnam & Gerald J. Lobo & Dennis J. Whalen, 2005. "Relationship Between Analyst Forecast Properties and Equity Bid-Ask Spreads and Depths Around Quarterly Earnings Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1773-1799.
    6. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    7. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 1-36, March.
    8. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    9. Scherer, Andreas Georg & Palazzo, Guido & Baumann, Dorothée, 2006. "Global Rules and Private Actors: Toward a New Role of the Transnational Corporation in Global Governance," Business Ethics Quarterly, Cambridge University Press, vol. 16(4), pages 505-532, October.
    10. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
    11. Chowdhury, Jaideep & Kumar, Raman & Shome, Dilip, 2016. "Investment–cash flow sensitivity under changing information asymmetry," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 28-40.
    12. Goergen, Marc & Renneboog, Luc, 2001. "Investment policy, internal financing and ownership concentration in the UK," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 257-284, September.
    13. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    14. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    15. Robert G. Eccles & Ioannis Ioannou & George Serafeim, 2012. "The Impact of Corporate Sustainability on Organizational Processes and Performance," NBER Working Papers 17950, National Bureau of Economic Research, Inc.
    16. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    17. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    18. Jiang, Guohua & Lee, Charles M.C. & Yue, Heng, 2010. "Tunneling through intercorporate loans: The China experience," Journal of Financial Economics, Elsevier, vol. 98(1), pages 1-20, October.
    19. Lu & Chia-Wu & Chueh & Ting-Shu, 2015. "Corporate Social Responsibility and Information Asymmetry," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(3), pages 1-8.
    20. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    21. Najah Attig & Sadok El Ghoul & Omrane Guedhami & Jungwon Suh, 2013. "Corporate Social Responsibility and Credit Ratings," Journal of Business Ethics, Springer, vol. 117(4), pages 679-694, November.
    22. Grzegorz Pawlina & Luc Renneboog, 2005. "Is Investment‐Cash Flow Sensitivity Caused by Agency Costs or Asymmetric Information? Evidence from the UK," European Financial Management, European Financial Management Association, vol. 11(4), pages 483-513, September.
    23. Kiridaran Kanagaretnam & Gerald J. Lobo & Dennis J. Whalen, 2005. "Relationship Between Analyst Forecast Properties and Equity Bid‐Ask Spreads and Depths Around Quarterly Earnings Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1773-1799, November.
    24. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    25. El Ghoul, Sadok & Guedhami, Omrane & Wang, He & Kwok, Chuck C.Y., 2016. "Family control and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 131-146.
    26. Ascioglu, Asli & Hegde, Shantaram P. & McDermott, John B., 2008. "Information asymmetry and investment-cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1036-1048, June.
    27. Boubakri, Narjess & El Ghoul, Sadok & Wang, He & Guedhami, Omrane & Kwok, Chuck C.Y., 2016. "Cross-listing and corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 123-138.
    28. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    29. Cutillas Gomariz, Mª Fuensanta & Sánchez Ballesta, Juan Pedro, 2014. "Financial reporting quality, debt maturity and investment efficiency," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 494-506.
    30. Gillan, Stuart L., 2006. "Recent Developments in Corporate Governance: An Overview," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 381-402, June.
    31. Nandy, Monomita & Lodh, Suman, 2012. "Do banks value the eco-friendliness of firms in their corporate lending decision? Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 83-93.
    32. Koh, Ping-Sheng, 2003. "On the association between institutional ownership and aggressive corporate earnings management in Australia," The British Accounting Review, Elsevier, vol. 35(2), pages 105-128.
    33. Mansour, Walid, 2014. "Information asymmetry and financing constraints in GCC," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 19-29.
    34. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    35. Borghesi, Richard & Houston, Joel F. & Naranjo, Andy, 2014. "Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 164-181.
    36. Mark P. Sharfman & Chitru S. Fernando, 2008. "Environmental risk management and the cost of capital," Strategic Management Journal, Wiley Blackwell, vol. 29(6), pages 569-592, June.
    37. Kenneth Lehn & Annette Poulsen, 1989. "Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, July.
    38. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    39. Najah Attig & Narjess Boubakri & Sadok El Ghoul & Omrane Guedhami, 2016. "Firm Internationalization and Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 134(2), pages 171-197, March.
    40. Mohammed Benlemlih & Mohammad Bitar, 2018. "Corporate Social Responsibility and Investment Efficiency," Post-Print halshs-01321227, HAL.
    41. Chi, Jianxin Daniel & Scott Lee, D., 2010. "The conditional nature of the value of corporate governance," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 350-361, February.
    42. Degryse, Hans & de Jong, Abe, 2006. "Investment and internal finance: Asymmetric information or managerial discretion?," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 125-147, January.
    43. Luo, Qi & Li, Hui & Zhang, Biao, 2015. "Financing constraints and the cost of equity: Evidence on the moral hazard of the controlling shareholder," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 99-106.
    44. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
    45. Guariglia, Alessandra & Yang, Junhong, 2016. "A balancing act: Managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 111-130.
    46. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    47. Attig, Najah & Cleary, Sean & El Ghoul, Sadok & Guedhami, Omrane, 2012. "Institutional investment horizon and investment–cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1164-1180.
    48. Maretno Harjoto & Hoje Jo, 2011. "Corporate Governance and CSR Nexus," Journal of Business Ethics, Springer, vol. 100(1), pages 45-67, April.
    49. Benjamin E. Hermalin, 2005. "Trends in Corporate Governance," Journal of Finance, American Finance Association, vol. 60(5), pages 2351-2384, October.
    50. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165, Elsevier.
    51. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, July.
    52. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
    53. Lin, Chin-Huang & Yang, Ho-Li & Liou, Dian-Yan, 2009. "The impact of corporate social responsibility on financial performance: Evidence from business in Taiwan," Technology in Society, Elsevier, vol. 31(1), pages 56-63.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Karim Ben Khediri, 2021. "CSR and investment efficiency in Western European countries," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(6), pages 1769-1784, November.
    2. Mohammed Benlemlih & Mohammad Bitar, 2018. "Corporate Social Responsibility and Investment Efficiency," Journal of Business Ethics, Springer, vol. 148(3), pages 647-671, March.
    3. Najah Attig & Sean Cleary & Sadok Ghoul & Omrane Guedhami, 2014. "Corporate Legitimacy and Investment–Cash Flow Sensitivity," Journal of Business Ethics, Springer, vol. 121(2), pages 297-314, May.
    4. Chen, Ruiyuan & El Ghoul, Sadok & Guedhami, Omrane & Wang, He, 2017. "Do state and foreign ownership affect investment efficiency? Evidence from privatizations," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 408-421.
    5. Xede, James & Simon Peter Dak-Adzaklo, Cephas & Ofosu, Emmanuel & Wise Dodzidenu Adza, Solomon, 2023. "Competition laws, external financing and investment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    6. Vijayakumaran, Ratnam, 2021. "Impact of managerial ownership on investment and liquidity constraints: Evidence from Chinese listed companies," Research in International Business and Finance, Elsevier, vol. 55(C).
    7. Xin Qu & Majella Percy & Fang Hu & Jenny Stewart, 2022. "Can CEO equity‐based compensation limit investment‐related agency problems?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2579-2614, June.
    8. Imen Derouiche & Majdi Hassan & Sarra Amdouni, 2018. "Ownership structure and investment-cash flow sensitivity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(1), pages 31-54, March.
    9. Lijuan Xiao & Min Bai & Yafeng Qin & Lingyun Xiong & Lijuan Yang, 2021. "Financial Slack and Inefficient Investment Decisions in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 920-941, June.
    10. Valentina Peruzzi, 2017. "Does family ownership structure affect investment-cash flow sensitivity? Evidence from Italian SMEs," Applied Economics, Taylor & Francis Journals, vol. 49(43), pages 4378-4393, September.
    11. Shihong Zeng & Yujia Qin & Guowang Zeng, 2019. "Impact of Corporate Environmental Responsibility on Investment Efficiency: The Moderating Roles of the Institutional Environment and Consumer Environmental Awareness," Sustainability, MDPI, vol. 11(17), pages 1-21, August.
    12. Attig, Najah & Cleary, Sean & El Ghoul, Sadok & Guedhami, Omrane, 2012. "Institutional investment horizon and investment–cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1164-1180.
    13. Yang, Junhong & Guariglia, Alessandra & Guo, Jie (Michael), 2019. "To what extent does corporate liquidity affect M&A decisions, method of payment and performance? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 54(C), pages 128-152.
    14. Lin, Yu-En & Li, Yi-Wen & Cheng, Teng Yuan & Lam, Keith, 2021. "Corporate social responsibility and investment efficiency: Does business strategy matter?," International Review of Financial Analysis, Elsevier, vol. 73(C).
    15. Naeem, Kashif & Li, Matthew C., 2019. "Corporate investment efficiency: The role of financial development in firms with financing constraints and agency issues in OECD non-financial firms," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 53-68.
    16. Ijaz Ur Rehman & Faisal Shahzad & Khawaja Fawad Latif & Noman Nawab & Abdul Rashid & Shabir Hyder, 2021. "Does corporate social responsibility mediate the influence of national culture on investment inefficiency? Firm‐level evidence from Asia Pacific," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3484-3503, July.
    17. Julan Du & Charles Ka Yui Leung & Derek Chu, 2014. "Return Enhancing, Cash-rich or simply Empire-Building? An Empirical Investigation of Corporate Real Estate Holdings," International Real Estate Review, Global Social Science Institute, vol. 17(3), pages 301-357.
    18. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    19. Kabbach-de-Castro, Luiz Ricardo & Kalatzis, Aquiles Elie Guimarães & Pellicani, Aline Damasceno, 2022. "Do financial constraints in an unstable emerging economy mitigate the opportunistic behavior of entrenched family owners?," Emerging Markets Review, Elsevier, vol. 50(C).
    20. Gao, Xin & Xu, Weidong & Li, Donghui & Xing, Lu, 2021. "Media coverage and investment efficiency," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 270-293.

    More about this item

    Keywords

    Corporate social responsibility; Investment efficiency; Agency costs; Information asymmetry; STOXX Europe 600;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mulfin:v:40:y:2017:i:c:p:33-46. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/mulfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.