Publication: How do independent directors view corporate social responsibility (CSR)? Evidence from a quasi-natural experiment
Issued Date
2020-01-01
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ISSN
15406288
07328516
07328516
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2-s2.0-85089072130
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Mahidol University
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SCOPUS
Bibliographic Citation
Financial Review. (2020)
Suggested Citation
Pandej Chintrakarn, Pornsit Jiraporn, Shenghui Tong, Napatsorn Jiraporn, Richard Proctor How do independent directors view corporate social responsibility (CSR)? Evidence from a quasi-natural experiment. Financial Review. (2020). doi:10.1111/fire.12244 Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/57872
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Title
How do independent directors view corporate social responsibility (CSR)? Evidence from a quasi-natural experiment
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Abstract
© 2020 The Eastern Finance Association We investigate how independent directors view corporate social responsibility (CSR). Exploiting the passage of the Sarbanes-Oxley (SOX) Act and the associated exchange listing requirements as an exogenous regulatory shock, we document that independent directors view CSR activities unfavorably. In particular, firms forced to raise board independence reduce CSR engagement significantly relative to those not required to increase board independence. Our results are consistent with the risk-mitigation view and the agency cost hypothesis where managers over-invest in CSR to mitigate their own exposure to nonsystematic risk. The over-investments in CSR are curbed in the presence of a stronger, more independent, board of directors. Several robustness checks confirm the results, including fixed-effects and random-effects regressions, dynamic panel data analysis, instrumental-variable analysis, propensity score matching, Lewbel's heteroscedastic identification, and Oster's method for coefficient stability. We also confirm the risk-mitigation hypothesis by showing that CSR activities reduce firm risk significantly. Our research design is much less vulnerable to endogeneity and is therefore likely to show a causal effect of board independence on CSR.