Do Managers Do Good with Other Peoples' Money?
49 Pages Posted: 20 Nov 2011 Last revised: 7 Oct 2020
Date Written: October 2, 2020
We show that spending on corporate social responsibility (CSR) is due partly to agency problems. Using the 2003 Dividend Tax Cut, which increased after-tax insider ownership, we find that firms with moderate levels of insider ownership cut CSR by more than firms with low levels (where the tax cut has no effect) and high levels (where agency is less of an issue). Moderate insider-ownership firms experienced larger increases in valuation. Similar insights hold in a regression-discontinuity design of close votes on shareholder-governance proposals. Individuals did not offset CSR cuts with private giving, suggesting a trade-off between governance and public goods.
Keywords: ESG, CSR, agency costs
JEL Classification: G30, G31, G35
Suggested Citation: Suggested Citation