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Journal of Business Ethics
Published in: Journal of Business Ethics 3/2014

01-12-2014

How Does the Stock Market Value Corporate Social Performance? When Behavioral Theories Interact with Stakeholder Theory

Authors: Ming Jia, Zhe Zhang

Published in: Journal of Business Ethics | Issue 3/2014

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Abstract

This study examines how the reference-point effect and sunk-cost fallacy interact with stakeholder theory and influence how investors evaluate corporate social performance. We propose that ex-ante (pre-IPO) corporate social performance influences ex-post (post-IPO) perceived riskiness and that this relationship is U-shaped. We also evaluate how CEO duality and company age moderate this U-shaped relationship. Using young and newly public entrepreneurial firms in China, and focusing on stock returns in the secondary market, empirical results and robustness tests provide strong support for our hypotheses.
previous article Painting with the Same Brush? Surveying Unethical Behavior in the Workplace Using Self-Reports and Observer-Reports
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Appendix
Available only for authorised users
Footnotes
1
Chinese Growth Enterprises Market, part of the Shenzhen Stock Exchange (SZSE) in Shenzhen, is China's NASDAQ.
 
2
Although the CSRC does not set an explicit quiet period for the underwriters, Chinese underwriters tend to range from 5 to 40 days.
 
3
We recognize that corporate philanthropic donations peaked after the Chinese Wenchuan earthquake on May 12, 2008. Our sample period begins 1 year after the earthquake, and the social pressure due to this natural disaster does not seriously influence corporate donation practices of our firms. Many newly listed firms went public in 2010 and 2011, far before the earthquake. Only 36 firms (13.5 %) listed in 2009. However, we still control for year-level effect by introducing a control variable of IPO year.
 
4
In response to reviewer’s comment, we introduce the employee benefits as another measure of CSP. Please refer to the section of robustness tests.
 
5
The samples are distributed across various industries (one or two-digit SIC) and includes 30 of C4, 31 of C5, 76 of C7, and 47 of G. Industries such as software manufacturing (G), chemical manufacturing (C4), and electrical manufacturing (C5) are highly competitive without heavy regulatory restrictions.
 
6
Due to missing data, we eliminate two samples.
 
7
Because our models include linear and squared terms and there are high correlations between these terms, we apply the residual centering procedure (Jong et al. 2005; Lance 1988) to handle multicollinearity between the linear term (e.g., X) and its squared parts (e.g., X 2 ). This procedure has two stages: first regress the squared term on its components, then use the residuals instead of the original squared terms in the data analyses (Jong et al. 2005; Lance 1988).
 
8
To simplify the moderating effect of newness, we separate the sample into two categories: firms 8 years old or younger at their IPO date (new firms), and firms older than 8 years at their IPO date (mature firms). We regress the firms on ratio of giving to profits. For the mature firms, the linear (β = 0.669, P < 0.01) and square terms (β = 2.563, P < 0.01) of ratio of giving to profits are significant; however, for new firms, the linear term is not significant but the square term is significant (β = 2.794, P < 0.01). We then draw a figure based on these regression results; it shows a pattern very consistent with Fig. 2. Due to page limits, we do not provide the regression table here. However, it is available on request.
 
9
Due to page limits, we do not provide the result table. It is available on request.
 
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Metadata
Title
How Does the Stock Market Value Corporate Social Performance? When Behavioral Theories Interact with Stakeholder Theory
Authors
Ming Jia
Zhe Zhang
Publication date
01-12-2014
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 3/2014
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-013-1924-7

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