Talented inside directors and corporate social responsibility: A tale of two roles

Luofan Bu, Kam C. Chan, Ahrum Choi and Gaoguang Zhou

Journal of Corporate Finance, 2021, vol. 70, issue C

Abstract: We examine the effect of inside directors with outside directorship, denoted as talented inside directors (TIDs), on corporate social responsibility (CSR) using 17,668 U.S. firm-year observations from 1998 to 2016. We find a significantly negative association between TIDs and excessive CSR and the result remains unchanged after correcting for endogeneity concern. We further shed light on how TIDs reduce excessive CSR through playing monitoring and advisory roles. The result showing a high sensitivity of CEO turnover to excessive CSR in firms with TIDs renders support to the monitoring hypothesis of TIDs. We further demonstrate that the baseline result is more pronounced for TIDs who are more likely to replace CEOs, for positive CSR activities that are more likely to enhance CEOs' personal benefits, and in firms that agency problems are more severe, providing additional evidence to support the monitoring hypothesis. This study also supports the advisory role of TIDs by showing that the baseline result is more pronounced in firms with high demand for board advice. Finally, we show that investors perceive that TIDs improve the value of CSR. Taken together, this study provides promising evidence that TIDs improve the efficiency of CSR investment by monitoring and advising CEOs.

Keywords: Talented inside directors; Corporate social responsibility; Corporate governance; Monitoring; Advising; Firm value (search for similar items in EconPapers)
JEL-codes: G32 G34 M14 O16 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:70:y:2021:i:c:s0929119921001668

DOI: 10.1016/j.jcorpfin.2021.102044

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