Working Paper: NBER ID: w19432
Authors: Inghaw Cheng; Harrison Hong; Kelly Shue
Abstract: We find support for two key predictions of an agency theory of unproductive corporate social responsibility. First, increasing managerial ownership decreases measures of firm goodness. We use the 2003 Dividend Tax Cut to increase after-tax insider ownership. Firms with moderate levels of insider ownership cut goodness by more than firms with low levels (where the tax cut has no effect) and high levels (where agency is less of an issue). Second, increasing monitoring reduces corporate goodness. A regression discontinuity design of close votes around the 50% cut-off finds that passage of shareholder governance proposals leads to slower growth in goodness.
Keywords: corporate social responsibility; agency theory; managerial ownership; governance; dividend tax cut
JEL Codes: D03; G02; G10; G3; G39
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing managerial ownership (G34) | decrease in measures of corporate goodness (G38) |
| 2003 dividend tax cut (G35) | increase in managerial ownership (G34) |
| increasing monitoring through shareholder governance proposals (G34) | decrease in corporate goodness (G38) |
| shareholder governance proposals (G34) | increase in monitoring (E63) |
| governance improvements (G38) | slower growth in goodness scores (F62) |