Analyzing a sample of 13,917 US firm-years from 1991 to 2006, we find that more innovative firms demonstrate high corporate social responsibility (CSR) performance subsequent to a successful ...innovation. These high-CSR innovative firms enjoy significantly higher valuation post-innovation. These findings imply that firms with demonstrated potential growth opportunities, as evident from the number of registered patents and their citations, benefit by strategically investing more in CSR activities; that is, CSR investment entails 'doing well by strategically doing good.'
Studies in social sciences suggest that a normative commitment to stable, biological married life is a potent catalyst for inculcating and nourishing prosocial values, preferences and behaviors among ...family members. Extrapolating from this literature, we investigate whether firms led by married chief executive officers (CEOs) are associated with better corporate social responsibility (CSR). Our analysis of 2163 U.S. public corporations from 1993 to 2008 shows that firms led by married CEOs are associated with significantly higher scores on a popular CSR index, after controlling for a wide range of firm characteristics and CEO attributes. Further, the observed positive relation is particularly sharper with the diversity and employee relations components of CSR. Our findings highlight CEO marital status as an important driver of socially responsible corporate decision making.
•Attempt to answer whether the firms led by married CEOs are associated with better corporate social responsibility (CSR).•Firms led by married CEOs are associated with significantly higher scores on CSR.•The Married CEO – CSR association is particularly pronounced on diversity and employee relations components of CSR.•CEO marital status as an important driver of socially responsible corporate decision making.
CEOs’ option-based compensation and discussions about political risk (risk-talking) in successive earnings conference calls are significantly positively associated. This effect is more significant in ...the subsample of firms with less equity price volatility and poor investment risk-taking (lower capital expenditure). Furthermore, seven out of eight components of risk-talking are positively related to CEOs’ option-based compensation. These findings suggest that CEOs with more options in compensation packages are likely to find discussing political risk during corporate earnings calls as a viable alternative to boost proxies of risk-taking outcomes (such as equity price volatility), especially when they perceive risk-taking expectations to be untenable.
CEOs with substantial general managerial ability (generalist CEOs) possess a substantial share of organization (human) capital and have different risk-taking incentives than do their counterpart ...specialist CEOs. Using an index increasing in CEO general managerial skills as a proxy for general managerial ability, we find that investors require higher returns from firms featuring CEOs who have profuse general managerial ability. Furthermore, expected returns are significantly increasing with CEO general managerial ability in firms with high organization capital, that belong to M&A-intensive industries and that have complex operations, high agency problems and high anti-takeover provisions. These findings are consistent with arguments that organization (human) capital has significant expected return implications and that CEOs with higher general managerial skills may lead to higher agency problems, feature different risk-taking incentives and be more costly to retain in times of need.
•Investors' required rate of return is increasing in CEO general managerial ability.•Such effect is more pronounced in firms with high organization capital.•More pronounced in firms in M&A-intensive-industries and with complex operations•More pronounced in firms with high agency costs and high anti-takeover provisions•Results are robust after accounting for endogeneity and identification issues.
Research Question/Issue
We examine chief executive officers' (CEOs) lifetime work experience in private firms and its potential influence in shaping managers' style in public firms and their ...corporate policies and thus the market's perception of a firm's risk.
Research Findings/Insights
We find that the idiosyncratic risk of public firms increases with the extent of CEO work experience in privately owned firms (CEO private experience). While there is no evidence of higher investment risk taking by private CEOs, the proportion of private‐firm work experience has a positive association with disclosure deficiency, decrease in manager‐owner agency conflicts, and an increase in political risk revelations at earnings conference calls, which, in turn, are associated with the elevation of idiosyncratic risk.
Theoretical/Academic Implications
The findings of this study underscore arguments in the upper echelons theory, imprinting theory, and behavioral agency theory. The study also has implications for literature related to corporate disclosure, governance, and political risk.
Practitioner/Policy Implications
Idiosyncratic risk is important for firms, as the literature suggests it hurts a firm's ability to finance future capital investments; therefore, it is optimal for corporate boards to have strategies in place to monitor and offer orientation packages targeted at alleviating CEO style heterogeneities presented by their prior work experience in private firms.
We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of US firms. Using several approaches to estimate firms’ ex ante cost of equity, we ...find that firms with better CSR scores exhibit cheaper equity financing. In particular, our findings suggest that investment in improving responsible employee relations, environmental policies, and product strategies contributes substantially to reducing firms’ cost of equity. Our results also show that participation in two “sin” industries, namely, tobacco and nuclear power, increases firms’ cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.
I find a strong positive association between firms' implied cost of equity capital and firm‐level political risk. This effect is above and beyond the firm‐level cost of equity implications of ...economywide political risk. Firm‐level political risk contributes to elevating stock illiquidity, increases dispersion of analyst forecasts and dampens analyst coverage and these attributes, in turn, have positive cost of equity capital implications. Overall, the findings of this study suggest firm‐level political risk has a non‐trivial effect on increasing equity market illiquidity, increasing dispersion of earnings forecasts and decreasing analyst coverage thus increasing financing costs.
ABSTRACT
Manuscript Type: Empirical
Research Question/Issue: Prior literature suggests that weak external governance mechanisms negatively affect corporate risk taking (CRT). However, strong internal ...governance is likely to mitigate the shortcomings of external governance. In a sample of East Asian firms, we examine whether the presence and voting power of multiple large shareholders (MLS) beyond the dominant shareholder effectively manage internal governance and mitigate agency problems, as measured by their effect on CRT.
Research Findings/Insights: In a sample of 1,686 firms from nine countries, while the presence of a dominant shareholder is associated with a lower CRT, the presence and voting rights of the MLS are strongly associated with a higher CRT. Furthermore, the effect of the MLS on CRT is strongly positive in family dominated firms (as opposed to non‐family dominated firms).
Theoretical/Academic Implications: We interpret these findings as evidence that in firms featuring a dominant shareholder with the power and incentives to extract private benefits of control by undertaking a conservative investment policy, the power and presence of MLS improve internal governance by mitigating agency problems between the dominant shareholder and minority shareholders and help promote a more optimal non‐conservative investment policy.
Practitioner/Policy Implications: In countries where financial markets are still developing and in countries where the dominant shareholder structures are widespread, the policy makers may encourage MLS structures in general and in the privatization of state enterprises.
Patented knowledge capital improves the transparency of research and development expenditures, converts intangible intellectual property into collateralizable and salable assets, enhances sustained ...competitive advantage by enabling firms to weather business cycles, withstand obsolescence risk and competitive threats, and lowers future financing risk and growth uncertainties. Consistent with this conjecture, we find that knowledge capital, proxied by stocks of patents, their forward citations and estimated market value, is associated with lower future cost of equity as well as firm risk. These findings appear robust to controlling for the stock of R&D expenses, potential endogeneity concerns about firms’ innovative activities, controls for technology spillovers from industry rivals, and product market competition.
Using chief executive officers’ (CEOs’) lifetime nonemployment experience in prominent charitable organizations to create a proxy for CEO charitable inclination, I find that charitably inclined CEOs ...receive a significant pay premium. The pay premium sensitivity to CEO charitable inclination is particularly pronounced for male, external, and specialist CEOs who are employed at firms that are undiversified, larger, less debt reliant, poor performing, facing high product‐market competition, and that keep nonmanipulative financial statements and demonstrate high inclination to social responsibility in the area of diversity, employee relations, and internal governance. This research contributes to the broader debate on labor market pricing of CEO characteristics.
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