The Effect of Corporate Governance on Corporate Social Responsibility

Pandej Chintrakarn, Pornsit Jiraporn, Jang Chul Kim, Young Sang Kim

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

Motivated by agency theory, we explore the effect of corporate governance quality on corporate social responsibility (CSR), using the governance standards provided by Institutional Shareholder Services (ISS). Our evidence reveals that firms with more effective governance make significantly less investment in CSR. It appears that managers tend to over-invest in CSR and are forced to reduce CSR investments when corporate governance is more effective. In particular, an improvement in governance quality by one standard deviation translates into a decline in CSR investments by 7.16%. Our fixed-effects analysis also shows that, within firms, when governance quality improves over time, CSR investments decline significantly. Using the passage of the Sarbanes-Oxley Act of 2002 as an exogenous shock that improves the quality of corporate governance, we demonstrate that high-quality governance is not merely associated with, but rather brings about, lower CSR investments.

Original languageEnglish (US)
Pages (from-to)102-123
Number of pages22
JournalAsia-Pacific Journal of Financial Studies
Volume45
Issue number1
DOIs
StatePublished - Feb 1 2016

All Science Journal Classification (ASJC) codes

  • Finance

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