The Effect of the Security and Exchange Commission’s Investigations into Corporate Social Responsibility Performance

Karel Hrazdil (), Jeong-Bon Kim and Xin Li
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Karel Hrazdil: Beedie School of Business, Simon Fraser University, Vancouver, BC V5A 1S6, Canada
Jeong-Bon Kim: Beedie School of Business, Simon Fraser University, Vancouver, BC V5A 1S6, Canada
Xin Li: School of Business, Trinity Western University, Langley, BC V2Y 1Y1, Canada

Sustainability, 2023, vol. 15, issue 19, 1-17

Abstract: We examine the effect of the Security and Exchange Commission’s (SEC) investigations into firms’ corporate social responsibility (CSR) performance. Adopting a staggered event study setting and analyzing all public and private SEC investigations into possible violations of federal securities laws, we find that firms reduce their investment in ESG-related activities and experience significantly lower CSR performance while being investigated by the SEC. This baseline finding is more pronounced among firms that appoint a large auditor or force their CEO to resign. To address concerns about potential endogeneity, we also conduct a multiperiod dynamic analysis and estimate our baseline regressions using the propensity-score-matched sample. Our results further reveal that the negative effect of SEC investigations on CSR performance manifests in CSR activities related to corporate governance and firms’ products. Overall, we highlight some unintended consequences of SEC investigations.

Keywords: SEC investigations; CSR; ESG; corporate future orientation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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