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We show that a firm's CSR policy is significantly influenced by the CSR policies of firms in the same three‐digit zip code, an effect possibly due to investor clienteles, local competition, and/or social interactions. We then exploit the variation in CSR across the zip codes to estimate the effect of CSR on credit ratings under the assumption that zip code assignments are exogenous. We find that more socially responsible firms enjoy more favorable credit ratings. In particular, an increase in CSR by one standard deviation improves the firm's credit rating by as much as 4.5%.

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We find that firms with gender/racial diversity in their boards are more likely to pay larger dividends than firms with non-diverse boards. Our results suggest that board diversity has a significant impact on dividend payout policy. The impact of board diversity on dividend payout policy is particularly conspicuous for firms with potentially greater agency problems of free cash flow, suggesting that a diverse board helps to mitigate the free cash flow problem. Our findings are consistent with the argument that board diversity enhances the monitoring function of directors and shareholder-manager conflict resolution for the benefit of shareholders.