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Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests

Author

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  • Borghesi, Richard
  • Houston, Joel F.
  • Naranjo, Andy

Abstract

Corporate managers often invest in activities that are deemed to be socially responsible. In some instances, these investments enhance shareholder value. However, in other cases, altruistic managers or managers who privately benefit from the positive attention arising from these activities may choose to make socially responsible investments even if they are not value enhancing. Given this backdrop, we investigate the various factors that motivate firm managers to make socially responsible investments. We find that larger firms, firms with greater free cash flow, and higher advertising outlays demonstrate higher levels of corporate social responsibility (CSR). We also find that companies with stronger institutional ownership are less likely to invest in CSR — which casts doubt on the argument that these investments are designed to promote shareholder value. Consistent with the literature that explores how CEO personal attributes influence corporate decision making, we find that female CEOs, younger CEOs, and managers who donate to both Republican and Democratic parties are significantly more likely to invest in CSR. This latter result suggests that CSR investments may not be driven solely for altruistic reasons, but instead may be part of a broader strategy to create goodwill and/or help maintain good political relations. Finally, we find a strong positive connection between the level of media scrutiny surrounding the firm and its CEO, and the level of CSR investment. This finding suggests that media attention helps induce firms to make socially responsible investments.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:corfin:v:26:y:2014:i:c:p:164-181
    DOI: 10.1016/j.jcorpfin.2014.03.008
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jie Chen & Xicheng Liu & Wei Song, 2018. "CEO general managerial skills and corporate social responsibility," Working Papers 2018-16, Swansea University, School of Management.
    2. repec:eee:joacli:v:34:y:2015:i:c:p:1-16 is not listed on IDEAS
    3. repec:eee:mulfin:v:40:y:2017:i:c:p:33-46 is not listed on IDEAS
    4. Eunjung Hyun & Daegyu Yang & Hojin Jung & Kihoon Hong, 2016. "Women on Boards and Corporate Social Responsibility," Sustainability, MDPI, Open Access Journal, vol. 8(4), pages 1-26, March.
    5. repec:gam:jsusta:v:8:y:2016:i:4:p:300:d:66430 is not listed on IDEAS
    6. Becchetti, Leonardo & Ciciretti, Rocco & Hasan, Iftekhar, 2015. "Corporate social responsibility, stakeholder risk, and idiosyncratic volatility," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 297-309.
    7. repec:kap:jbuset:v:145:y:2017:i:3:d:10.1007_s10551-015-2899-3 is not listed on IDEAS
    8. McGuinness, Paul B. & Vieito, João Paulo & Wang, Mingzhu, 2017. "The role of board gender and foreign ownership in the CSR performance of Chinese listed firms," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 75-99.
    9. Ng, Anthony C. & Rezaee, Zabihollah, 2015. "Business sustainability performance and cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 128-149.
    10. Thomas Maak & Nicola M. Pless & Christian Voegtlin, 2016. "Business Statesman or Shareholder Advocate? CEO Responsible Leadership Styles and the Micro-Foundations of Political CSR," Journal of Management Studies, Wiley Blackwell, vol. 53(3), pages 463-493, May.
    11. Thomas Maak & Nicola Pless & Christian Voegtlin, 2016. "Business Statesman or Shareholder Advocate? CEO Responsible Leadership Styles and the Micro-Foundations of Political CSR," Post-Print hal-01480535, HAL.
    12. Jian, Ming & Lee, Kin-Wai, 2015. "CEO compensation and corporate social responsibility," Journal of Multinational Financial Management, Elsevier, vol. 29(C), pages 46-65.
    13. repec:eee:finlet:v:23:y:2017:i:c:p:291-299 is not listed on IDEAS
    14. Bryan Hong & Zhichuan Li & Dylan Minor, 2016. "Corporate Governance and Executive Compensation for Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 136(1), pages 199-213, June.

    More about this item

    Keywords

    Corporate social responsibility; Corporate governance; Media coverage; Political connections;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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