Corporate Social Responsibility and Investment Efficiency
- 1k Downloads
Using a sample of 21,030 US firm-year observations that represents more than 3000 individual firms over the 1998–2012 period, we investigate the relationship between Corporate Social Responsibility (CSR) and investment efficiency. We provide strong and robust evidence that high CSR involvement decreases investment inefficiency and consequently increases investment efficiency. This result is consistent with our expectations that high CSR firms enjoy low information asymmetry and high stakeholder solidarity (stakeholder theory). Moreover, our findings suggest that CSR components that are directly related to firms’ primary stakeholders (e.g. employee relations, product characteristics, environment, and diversity) are more relevant in reducing investment inefficiency compared with those related to secondary stakeholders (e.g. human rights and community involvement). Finally, additional results show that the effect of CSR on investment efficiency is more pronounced during the subprime crisis. Taken together, our results highlight the important role that CSR plays in shaping firms’ investment behaviour and efficiency.
KeywordsCorporate social responsibility Corporate governance Investment efficiency Stakeholders theory
JEL ClassificationG32 O16 M14
- Attig, N. (2011). Intangible assets, organizational capital and corporate social responsibility: Evidence from U.S. manufacturing firms. Working paper, Saint Mary’s University, Halifax, NS.Google Scholar
- Attig, N., Boubakri, N., El Ghoul, S., & Guedhami, O. (2014). Firm internationalization and corporate social responsibility. Journal of Business Ethics. doi: 10.1007/s10551-014-2410-6.
- Benlemlih, M., & Girerd-Potin, I. (2014). Does corporate social responsibility affect firm financial risk? Evidence from international data. Financial Management Association European Conference (FMA), 11–13 June, Maastricht, The Netherlands.Google Scholar
- Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. The Academy of Management Review, 4(4), 497–505.Google Scholar
- Chen, R., El Ghoul, S., Guedhami, O., & Wang, H. (2014). Do state and foreign ownership affect investment efficiency? Evidence from privatizations. Journal of Corporate Finance. doi: 10.1016/j.jcorpfin.2014.09.001.
- Clarkson, M. B. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. The Academy of Management Review, 20(1), 92–117.Google Scholar
- Cui, J., Jo, H. and Na, H. (2012). Does corporate social responsibility reduce information asymmetry? Working paper, Korea University, Seoul.Google Scholar
- Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston, MA: Pitman.Google Scholar
- Friedman, M. (1970, 13 September). The social responsibility of business is to increase its profits. The New York Times Magazine.Google Scholar
- Hubbard, R. G. (1998). Capital-market imperfections and investment. Journal of Economic Literature, 36(1), 193–225.Google Scholar
- Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–329.Google Scholar
- Kytle, B. and Ruggie, J. G. (2005). Corporate social responsibility as risk management: A model for multinationals. Corporate social responsibility initiate working paper No. 10, Harvard University, Cambridge, MA.Google Scholar
- Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.Google Scholar
- Renneboog, L. D. R., Liang, H. and Ferrell, A. (2014). Socially responsible firms. Center Discussion Paper No. 2014-043, Tilburg University, Tilburg.Google Scholar
- Vance, S. C. (1975). Are socially responsible corporations good investment risks? Management Review, 64(8), 18–24.Google Scholar