Krüger: corporate goodness and shareholder wealth Flashcards
economic theory suggests that companies should not
internalize the negative externalities they exert on non-shareholding stakeholders such as communities, employees or the environment
CSR is simply the manifestation of
agency problems inside a firm: CSR primarily benefits managers who, at the expense of shareholders, earn a good reputation among key stakeholders
less financially constrained firms tend to have
better CSR performance - doing good by doing well
shareholders tend to react more positively to CSR news whenever it is more likely to be the result of
more likely to be the result of the firm addressing problematic stakeholder relations by “offsetting” previous corporate irresponsibility
investors react more strongly to CSR news containing
more economic and legal information
investors react strongly negatively to the arrival of
negative CSR news: the negative relation is particularly pronounced for information regarding communities and the environment
declining stock prices following the release of negative stakeholder information suggests
that there is a substantial and non-negligible cost associated with social irresponsibility
investors respond slightly negative to the release of
positive CSR news: the reaction is pronounced when the news concern communities or the environment
high leverage and low liquidity should indicate
fewer agency concerns
positive CSR events should bring about more positive
more positive stock market reactions
positive events concerning firms with poor stakeholder relations should be received more positively by shareholders than events concerning firms with
no controversies
corporate actions aimed at preventing negative CSR events could be
much more costly than the occasional stock price decline
investing in CSR is not, on average, beneficial for shareholder value (positive events):
1) implementing CSR policies is costly
2) the expected benefits from implementing CSR policies fall short of the costs
stock markets perceive policies aimed at voluntarily increasing the welfare of communities as wasteful wealth transfer from shareholders to communities (positive events):
1) increasing welfare for communities might reflect agency problems
2) negative cash-flow shock
high leverage and low liquidity should indicate
fewer agency problems, and positive CSR events involving such firms should bring about a more favorable stock market reaction
when companies with high levels of liquidity are involved in positive CSR news, investors react
less favorably
CSR is shareholder value reducing whenever it is conducted by companies that
are more likely to be facing agency problems
agency problems are more likely to be pronounced in
large firms - the result of negative value implications for agency-motivated CSR may not be applicable to small firms
investors regard companies with higher cash reserves as being in a better position to
shoulder the negative cash flow implications of negative events
firms with high credit ratings tend to
suffer stronger negative stock market reactions following the occurrence of negative events
negative events have the strongest negative price impact when
the negative information starkly contrasts with current investors’ expectations about the firm’s financial strength
negative events regarding the environment are less value-reducing for
larger companies
negative community related news concerning firms with human rights strength generate a
more negative stock market reaction
when positive news about CSR concern firms in which agency problems are less likely to be present, investors tend to react
more favorably
