Saturday, January 1, 2022

Two SSRN Postings: "The Cost (and Unbenefit) of Conscious Capitalism" & "Mitigation of Reputational Risk via Responsive CSR"

Aswani, Bilokha, Cheng, and Cole have posted The Cost (and Unbenefit) of Conscious Capitalism on SSRN (here). The abstract:

This paper examines the costs and benefits of ‘stakeholder governance’ for shareholders and other stakeholders by using the adoption of constituency statutes as a quasi-exogenous shock to corporate governance. Constituency statutes permit board members to consider all stakeholder interests, relaxing fiduciary duty to only shareholders. Using a sample of U.S. publicly traded firms (1981-2010) and employing a difference-in-difference methodology, we find that the discretionary adoption of ‘stakeholder governance’ leads to managerial entrenchment and a reduction in institutional ownership and shareholder wealth with little to no ‘trade-off’ benefits to other stakeholders. As states adopted constituency statutes, signs of managerial entrenchment increased (proxied by significant declines in earnings transparency and jumps in CEO and Director compensation) as did harm to shareholder wealth and to governance through institutional ownership. At the same time, we do not observe potential ‘trade-off’ benefits to the non-shareholder stakeholders these statutes were intended to help; we find that labor, customers, and creditors only marginally benefited (if at all) from the introduction of these statutes. These results are robust to a battery of checks including the biasedness in the staggered DiD estimator.

Choi, Cook, Via, and Zhang have posted The Mitigation of Reputational Risk via Responsive CSR: Evidence from Securities Class Action Lawsuits on SSRN (here). The abstract:

We examine the strategic production of CSR as a post-shock damage control instrument (responsive CSR). We proxy for these shocks using securities lawsuits. Using hand-collected data to supplement our main CSR dataset, we find that responsive CSR is temporary and consists primarily of strategically placed news releases to blunt short-term effects from periodic negative news developments related to the litigation process. Firms use responsive CSR synergistically with advertising, and it is concentrated in firms headquartered in urban or liberal-leaning states that exert high ESG demands. We find that responsive CSR mostly represents window dressing – it does not add long-term value and is associated with board members that are faced with significant reputational concerns.

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