Does corporate social responsibility create shareholder value? The importance of long-term investors

We study the effect of corporate social responsibility (CSR) on shareholder value. We argue that long-term investors can ensure that managers choose the amount of CSR that maximizes shareholder value. We find that long-term investors do increase the value to shareholders of CSR activities, not throu...

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Bibliographic Details
Published inJournal of banking & finance Vol. 112; p. 105217
Main Authors Nguyen, Phuong-Anh, Kecskés, Ambrus, Mansi, Sattar
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.03.2020
Subjects
Agency problems
Corporate governance
Corporate social responsibility
Intangibles
Investment
Investor horizons
Managerial myopia
Monitoring
Profitability
Return
Risk
Shareholders
Stakeholders
Valuation
Volatility
Profitability
Return
G31
Valuation
Volatility
G32
Risk
G12
G23
G34
L21
Shareholders
M14
Corporate social responsibility
Corporate governance
Agency problems
Intangibles
Managerial myopia
Stakeholders
Monitoring
Investor horizons
Investment
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Summary:We study the effect of corporate social responsibility (CSR) on shareholder value. We argue that long-term investors can ensure that managers choose the amount of CSR that maximizes shareholder value. We find that long-term investors do increase the value to shareholders of CSR activities, not through higher cash flow but rather through lower cash flow risk. Following prior work, we use indexing by investors and state laws on stakeholder orientation for identification. Our findings suggest that CSR activities can create shareholder value as long as managers are properly monitored by long-term investors.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2017.09.013