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Journal of Business Ethics
Published in: Journal of Business Ethics 3/2018

20-01-2016

Corporate Social Responsibility and Investment Efficiency

Authors: Mohammed Benlemlih, Mohammad Bitar

Published in: Journal of Business Ethics | Issue 3/2018

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Abstract

Using a sample of 21,030 US firm-year observations that represents more than 3000 individual firms over the 1998–2012 period, we investigate the relationship between Corporate Social Responsibility (CSR) and investment efficiency. We provide strong and robust evidence that high CSR involvement decreases investment inefficiency and consequently increases investment efficiency. This result is consistent with our expectations that high CSR firms enjoy low information asymmetry and high stakeholder solidarity (stakeholder theory). Moreover, our findings suggest that CSR components that are directly related to firms’ primary stakeholders (e.g. employee relations, product characteristics, environment, and diversity) are more relevant in reducing investment inefficiency compared with those related to secondary stakeholders (e.g. human rights and community involvement). Finally, additional results show that the effect of CSR on investment efficiency is more pronounced during the subprime crisis. Taken together, our results highlight the important role that CSR plays in shaping firms’ investment behaviour and efficiency.
previous article “Teaching the Sushi Chef”: Hybridization Work and CSR Integration in a Japanese Multinational Company
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Appendix
Available only for authorised users
Footnotes
1
In 2014, the plenary of the European Parliament adopted a directive on extra-financial information disclosure that concerns large companies and groups. The companies concerned will have the obligation of disclosing information on policies, risks, and outcomes as regards environmental-, social-, and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity in their board of directors. These new extra-financial information disclosure rules will be applied to some large companies with more than 500 employees.
 
2
Several other studies provide similar results regarding the negative effect of CSR on information asymmetry and earnings management. For instance, Hong and Kacperczyk (2009) provide similar findings by analysing sin companies; Cohen et al. (2011) show that investors expressed an interest in increasing their use of non-financial information in the future, and Dhaliwal et al. (2012) demonstrate that the benefits associated with high CSR disclosure exceed the reduction of information asymmetry and generate a reduction in the cost of equity.
 
3
The mechanism through which CSR increases firms’ competitive advantages are multiple, namely, firm’s image, firm’s reputation, segmentation, and long-term cost saving.
 
4
As in Servaes and Tamayo (2013), we do not believe that corporate governance is a part of CSR. Corporate governance concerns the mechanisms that allow shareholders to reward and exert control on agents. CSR deals with the social and environmental objectives of the company and stakeholders other than shareholders. We thus follow Servaes and Tamayo (2013) by the excluding corporate governance component when constructing our overall CSR score. However, our results remain unchanged when we include the corporate governance area in the calculation of our overall CSR measure.
 
5
Previous literature shows alternative methods for creating a single CSR score. For example, Cai el al. (2015) calculate a CSR index by dividing the net of strengths and concerns by the total maximum possible number of strengths and concerns. In unreported results we calculate the overall CSR score using this alternative approach and re-run our main analysis. Our findings fully confirm the preliminary results and suggest that our results are not driven by the choice of the CSR measure.
 
6
We follow Benlemlih and Girerd-Potin (2014) by considering the definition of the National Bureau of Economic Research, which defines recession as a significant decline in economic activity that lasts more than a few months and that is visible in different macroeconomic variables. According to the National Bureau of Economic Research, the recession cycle period in the subprime crisis endured between December 2007 and June 2009.
 
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Metadata
Title
Corporate Social Responsibility and Investment Efficiency
Authors
Mohammed Benlemlih
Mohammad Bitar
Publication date
20-01-2016
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 3/2018
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-016-3020-2

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