How do independent directors view corporate social responsibility (CSR) during a stressful time? Evidence from the financial crisis

Pandej Chintrakarn, Pornsit Jiraporn and Sirimon Treepongkaruna

International Review of Economics & Finance, 2021, vol. 71, issue C, 143-160

Abstract: We explore the effect of board independence on CSR investments during a stressful time, i.e. during the Great Recession. Our results show that independent directors exhibit an unfavorable view of CSR investments during the crisis. Stronger board independence leads to a significant reduction in CSR. In particular, a rise in board independence by one standard deviation reduces CSR investments by about 8.22%. Further analysis shows that managers raised CSR investments during the crisis, consistent with the risk-mitigation view, where managers invest in CSR to reduce their risk exposure. However, managers appear to over-invest in CSR during the crisis as they are forced to cut back in the presence of a strong board, implying that part of the CSR investments during the crisis is motivated by managers’ own risk preference. Additional robustness checks corroborate the results, including fixed- and random-effects regressions, propensity score matching, and instrumental-variable analysis. Our study is the first to shed light on how independent directors view CSR during a stressful time. Finally, we show that CSR reduces firm risk substantially during the crisis, strongly confirming the risk-mitigation hypothesis.

Keywords: Corporate social responsibility; Independent directors; Board independence; Corporate governance; Financial crisis (search for similar items in EconPapers)
JEL-codes: G32 G34 M14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:71:y:2021:i:c:p:143-160

DOI: 10.1016/j.iref.2020.08.007

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