Krüger: corporate goodness and shareholder wealth

Question 1

economic theory suggests that companies should not

Answer 1

internalize the negative externalities they exert on non-shareholding stakeholders such as communities, employees or the environment

Question 2

CSR is simply the manifestation of

Answer 2

agency problems inside a firm: CSR primarily benefits managers who, at the expense of shareholders, earn a good reputation among key stakeholders

Question 3

less financially constrained firms tend to have

Answer 3

better CSR performance - doing good by doing well

Question 4

shareholders tend to react more positively to CSR news whenever it is more likely to be the result of

Answer 4

more likely to be the result of the firm addressing problematic stakeholder relations by “offsetting” previous corporate irresponsibility

Question 5

investors react more strongly to CSR news containing

Answer 5

more economic and legal information

Question 6

investors react strongly negatively to the arrival of

Answer 6

negative CSR news: the negative relation is particularly pronounced for information regarding communities and the environment

Question 7

declining stock prices following the release of negative stakeholder information suggests

Answer 7

that there is a substantial and non-negligible cost associated with social irresponsibility

Question 8

investors respond slightly negative to the release of

Answer 8

positive CSR news: the reaction is pronounced when the news concern communities or the environment

Question 9

high leverage and low liquidity should indicate

Answer 9

fewer agency concerns

Question 10

positive CSR events should bring about more positive

Answer 10

more positive stock market reactions

Question 11

positive events concerning firms with poor stakeholder relations should be received more positively by shareholders than events concerning firms with

Answer 11

no controversies

Question 12

corporate actions aimed at preventing negative CSR events could be

Answer 12

much more costly than the occasional stock price decline

Question 13

investing in CSR is not, on average, beneficial for shareholder value (positive events):

Answer 13

1) implementing CSR policies is costly

2) the expected benefits from implementing CSR policies fall short of the costs

Question 14

stock markets perceive policies aimed at voluntarily increasing the welfare of communities as wasteful wealth transfer from shareholders to communities (positive events):

Answer 14

1) increasing welfare for communities might reflect agency problems
2) negative cash-flow shock

Question 15

high leverage and low liquidity should indicate

Answer 15

fewer agency problems, and positive CSR events involving such firms should bring about a more favorable stock market reaction

Question 16

when companies with high levels of liquidity are involved in positive CSR news, investors react

Answer 16

less favorably

Question 17

CSR is shareholder value reducing whenever it is conducted by companies that

Answer 17

are more likely to be facing agency problems

Question 18

agency problems are more likely to be pronounced in

Answer 18

large firms - the result of negative value implications for agency-motivated CSR may not be applicable to small firms

Question 19

investors regard companies with higher cash reserves as being in a better position to

Answer 19

shoulder the negative cash flow implications of negative events

Question 20

firms with high credit ratings tend to

Answer 20

suffer stronger negative stock market reactions following the occurrence of negative events

Question 21

negative events have the strongest negative price impact when

Answer 21

the negative information starkly contrasts with current investors’ expectations about the firm’s financial strength

Question 22

negative events regarding the environment are less value-reducing for

Answer 22

larger companies

Question 23

negative community related news concerning firms with human rights strength generate a

Answer 23

more negative stock market reaction

Question 24

when positive news about CSR concern firms in which agency problems are less likely to be present, investors tend to react

Answer 24

more favorably

Question 25

when the positive CSR news is more likely to be the result of managerial efforts aimed at offsetting prior corporate social irresponsibility, stock prices

Answer 25

do increase

Question 26

investors tend to evaluate the severity of CSR events by reacting

Answer 26

more strongly to strongly positive and strongly negative events and less strongly to weakly negative and weakly positive events