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Socially Responsible Firms

Author

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  • Renneboog, L.D.R.

    (Tilburg University, Center For Economic Research)

  • Liang, H.

    (Tilburg University, Center For Economic Research)

  • Ferrell, A.

Abstract

In the corporate finance tradition starting with Berle & Means (1923), corporations should generally be run so as to maximize shareholder value. The agency view of corporate social responsibility (CSR) generally considers CSR as a managerial agency problem and a waste of corporate resources, since corporate insiders do good with other people’s money. We evaluate this agency view using large-scale datasets with global coverage (59 countries) on firm-level corporate engagement and compliance with respect to environmental, social, and governance issues. Using an instrumental variable approach, we document that CSR ratings are higher for companies with fewer agency problems (using standard proxies such as having lower levels of free cash flow and higher dividend payout and leverage ratios). Moreover, certain aspects of CSR (e.g., environmental, labor and social protection) are associated with increased executive pay-for-performance sensitivity and the maximization of shareholder value.

Suggested Citation

  • Renneboog, L.D.R. & Liang, H. & Ferrell, A., 2014. "Socially Responsible Firms," Discussion Paper 2014-043, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:d0e94017-b378-4134-9e56-2c85dfae342b
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    8. Liang, H. & Renneboog, Luc & Vansteenkiste, Cara, 2017. "Corporate Employee-Engagement and Merger Outcomes," Discussion Paper 2017-011, Tilburg University, Center for Economic Research.
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    20. Gwenael Roudaut, 2017. "The Representation of Managers, Shareholders and other Stakeholders inside the Boardroom: Does it Matter for CSR Commitment? ," Working Papers hal-01623944, HAL.
    21. Alexander Dyck & Karl V. Lins & Lukas Roth & Hannes F. Wagner, 2018. "Do Institutional Investors Drive Corporate Social Responsibility? International Evidence," BAFFI CAREFIN Working Papers 1873, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Keywords

    corporate social responsibility; agency problems; value enhancement; Corporate governance;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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