How Do Independent Directors View Corporate Social Responsibility (CSR)? Evidence from a Quasi-Natural Experiment

Chintrakarn, Pandej; Jiraporn, Pornsit; Tong, Shenghui; Jiraporn, Napatsorn; Proctor, Richard

doi:10.2139/ssrn.3675278

Cited by 7 publications

(9 citation statements)

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“…Likewise, default risk can be mitigated by CSR (Sun and Cui, 2014). Other studies report similar results, confirming the risk-mitigating effect of CSR (Orlitzky and Benjamin, 2001;Bansal and Clelland, 2004;Luo and Bhattacharya, 2006;Oikinomou et al, 2012;Chintrakarn et al, 2020;Lee et al, 2020). In conclusion, a higher degree of social responsibility enables firms to be more aware of their risk and be able to manage and mitigate the risk more efficiently (Vishwanathan et al, 2020).…”

Section: Corporate Social Responsibility As a Risk-mitigating Toolsupporting

confidence: 59%

The effect of corporate social responsibility (CSR) on shareholder value: evidence from the 9/11 terrorist attack

Ongsakul

Jiraporn²,

Tong³

et al. 2020

ARJ

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Purpose This paper aims to explore the effect of corporate social responsibility (CSR) on shareholder value using the stock market reactions to a terrorist attack. This paper exploits the September 11 terrorist attack as an unanticipated exogenous shock that reduced shareholder wealth suddenly and unexpectedly. Based on the risk-mitigation hypothesis, the argument is that more socially responsible firms should suffer less negative market reactions. Design/methodology/approach This paper uses the standard event study methodology to estimate the stock market reactions to the 9/11 terrorist attack. Then, the study executes a cross-section analysis to determine whether CSR offers any protection in the presence of a sudden negative shock. Additional analysis includes propensity score matching, instrumental-variable analysis and using Oster’s (2019) method for testing coefficient stability. Findings The results show that the negative stock market reactions to the shock are significantly alleviated for firms with strong social responsibility. A rise in CSR by one standard deviation improves the market reactions by 22.56% of the average decline. This is consistent with the prediction of the risk mitigation hypothesis, where CSR spawns moral capital or goodwill that functions as an insurance-like defense in case of an adverse event. Research limitations/implications The study focuses on short-term market reactions because this method is more likely to show a causal effect. Future research may investigate long-term effects. Originality/value While prior research has investigated the effect of CSR on firm value, it has been challenging to establish causality. The approach is more likely to show causality as it is based on a sudden and unanticipated negative shock. This paper also uses several methods to reduce endogeneity, making it more likely that the results show causality, rather than merely an association.

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Section: Corporate Social Responsibility As a Risk-mitigating Toolsupporting

confidence: 59%

The effect of corporate social responsibility (CSR) on shareholder value: evidence from the 9/11 terrorist attack

Ongsakul

Jiraporn²,

Tong³

et al. 2020

ARJ

Self Cite

View full text Add to dashboard Cite

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“…Two more recent studies also show that CSR is crucial in mitigating firm risk. Chintrakarn et al (2020) find that managers tend to overinvest in CSR to reduce firm risk because they are underdiversified relative to typical investors. The overinvestments in CSR are cut back when corporate governance is more effective, that is, when board independence is stronger.…”

Section: Brief Literature Reviewmentioning

confidence: 93%

“…The overinvestments in CSR are cut back when corporate governance is more effective, that is, when board independence is stronger. Chintrakarn et al (2020), focusing on the 2008 financial crisis, demonstrate that more socially responsible firms experienced significantly less risk during the financial crisis. Finally, Liang and Renneboog (2017), using an IV analysis, find that well-governed firms that experience fewer agency concerns engage more in CSR.…”

Section: Brief Literature Reviewmentioning

confidence: 99%

Does firm‐level political risk influence corporate social responsibility (CSR)? Evidence from earnings conference calls

Chatjuthamard

Treepongkaruna

Jiraporn

et al. 2021

The Financial Review

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Exploiting a novel measure of firm-level political risk based on earnings conference calls, we explore the effect of political exposure on corporate social responsibility (CSR). We show that firms more exposed to political risk invest significantly more in CSR activities. This finding is consistent with the risk-mitigation hypothesis, which posits that CSR produces moral capital that safeguards the firm in case of a negative event. Hence, firms exposed to more political risk engage in more CSR activities to take advantage of its insurance-like effect. An increase in political exposure by one standard deviation raises CSR engagement by 27.95%.

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“…Endogeneity is significantly reduced by relying on an external regulatory shock (Papangkorn et al , 2020). Several recent studies in the literature exploit this exogenous shock as a quasi-natural experiment to explore the effects of board independence on various corporate outcomes, strategies and policies such as director characteristics, director costs, chief executive officer (CEO) compensation, CEO turnover, managerial ownership, corporate risk-taking, innovation productivity, external audit quality, CEO power, corporate social responsibility (CSR), executive risk-taking incentives, CSR inequality and CEO general managerial skills (Engel et al , 2007; Leuz et al , 2008; Piotroski and Srinivasan, 2008; Chhaochharia and Grinstein, 2009; Guthrie et al , 2012; Kamar et al , 2009; Linck et al , 2009; Guo et al , 2015; Jiraporn and Nimmanunta, 2018; Jiraporn and Lee, 2018; Jiraporn et al , 2018a; Jiraporn et al , 2018b; Jiraporn et al , 2016; Chintrakarn et al , 2020; Ongsakul et al , 2020a; Ongsakul and Jiraporn, 2019; Chatjuthamard and Jiraporn, 2021). Therefore, this is a widely used empirical technique in the literature.…”

Section: Sample Construction Data Description and Empirical Strategymentioning

confidence: 99%

Does board independence influence asset redeployability? Evidence from a quasi-natural experiment

Padungsaksawasdi

Treepongkaruna

Jiraporn

et al. 2021

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Purpose Exploiting an exogenous regulatory shock and a novel measure of asset redeployability, this paper aims to explore the effect of independent directors on asset redeployability. In particular, the authors use an innovative measure of asset redeployability recently developed by Kim and Kung (2016). This novel index has been rapidly adopted in recent literature. Design/methodology/approach Relying on a quasi-natural experiment, the authors execute a difference-in-difference analysis based on an exogenous regulatory shock to board independence. To mitigate endogeneity and demonstrate causation, the authors also perform propensity score matching, instrumental-variable analysis and Oster’s (2019) approach for testing coefficient stability. Findings The difference-in-difference estimates show that firms forced to raise board independence have significantly fewer redeployable assets after the shock than those not required to change board composition. This is consistent with the managerial myopia hypothesis. Subject to more intense monitoring, managers behave more myopically, focusing more on assets that are currently useful to the firm and less on redeployability in the future. Originality/value The study makes key contributions to the literature. First, the study is the first to examine the effect of board governance on asset redeployability. Second, the authors exploit an innovative index of asset redeployability that has been recently constructed in the literature. Third, by using a natural experiment, the results are much more likely to reflect causality than merely an association.

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How Do Independent Directors View Corporate Social Responsibility (CSR)? Evidence from a Quasi-Natural Experiment

Cited by 7 publications

References 0 publications

The effect of corporate social responsibility (CSR) on shareholder value: evidence from the 9/11 terrorist attack

The effect of corporate social responsibility (CSR) on shareholder value: evidence from the 9/11 terrorist attack

Does firm‐level political risk influence corporate social responsibility (CSR)? Evidence from earnings conference calls

Does board independence influence asset redeployability? Evidence from a quasi-natural experiment

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