No abstract

This paper shows that corporate social responsibility (CSR) and firm value are positively related for firms with high customer awareness, as proxied by advertising expenditures. For firms with low customer awareness, the relation is either negative or insignificant. In addition, we find that the effect of awareness on the CSR–value relation is reversed for firms with a poor prior reputation as corporate citizens. This evidence is consistent with the view that CSR activities can add value to the firm but only under certain conditions. This paper was accepted by Bruno Cassiman, business strategy.

Agency problems are an importaiit detertninant of ccrpatate cash holdings. For a sample of more than 11,000 firms fiibm 45 countries, we find that ccrporatioiis in countries where shaidiolders rights are not well protected hold up to twice as much cash as corpontioiis in cotmtries with good shareholder protecticHi. ii addidoo, when shareholder protecti(Hi is poor, factns that genenlly drive Ihe need for cash holdings, stich as investment opportunities and asymmetric infcnnadco, actually became less inqxntaiiL These results are stronger after controlling for cqntal maiket development. Indeed, consistent with tbe impntance of agency costs, we find that finns hold lai^er cash balances when access to funds is easier. Otir evidence is consistent with the conjecture that investors in countries with poor shareholder protecdon cannot force tnanagers to disgorge excessive cash balances. I. Introduction At the end of 1998, the largest corporadons around the wrald (as listed on the Global Vantage database) held $1.5 trillion of cash and cash equivalents, which is almost 9% of the book value of their assets and slighdy above 9% of the market value of their equity. These numbers indicate that investments in cash are important for corporadons. Undl recendy, however, scholars paid reladvely litde direct attendon to die causes and consequences of corporate cash holdings. Instead, transacdons costs were assumed to be the major determinant of cash levels and firms with a higher marginal cost of cash shortfalls were expected to hold more cash (see, for exanq)le. Miller and Orr (1966), Meltzer (1993), and Mulligan (1997)). With few excepdons, discussions of other factors that could affect cash holdings were not the central theme of research.

During the 2008-2009 financial crisis, firms with high social capital, as measured by corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High-CSR firms also experienced higher profitability, growth, and sales per employee relative to low-CSR firms, and they raised more debt. This evidence suggests that the trust between a firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock. "The present financial crisis springs from a catastrophic collapse in confi-

We model the distortions that internal power struggles can generate in the allocation of resources between divisions of a diversified firm. The model predicts that if divisions are similar in the level of their resources and opportunities, funds will be transferred from divisions with poor opportunities to divisions with good opportunities. When diversity in resources and opportunities increases, however, resources can f low toward the most inefficient division, leading to more inefficient investment and less valuable firms. We test these predictions on a panel of diversified U.S. firms during the period from 1980 to 1993 and find evidence consistent with them.