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Essays on corporate social responsibility Barnea, Amir

Abstract

Corporate Social Responsibility (CSR) is very high on corporations' agenda in recent years. CSR means different things to different stakeholders but generally refers to serving people, communities and the environment in a way that goes beyond what is legally required of a firm. In this paper-based dissertation we analyze some potential driving forces behind this corporate behavior. The first paper explores the role of Socially Responsible Investing (SRI) - making investment decisions according to both financial and ethical criteria. We analyze the effect of SRI on the investment decisions of firms that fail the screen ('polluting' firms) and on their decisions to adopt a CSR-approved technology. These issues are examined in an equilibrium setting with endogenous investment decisions. We find that the presence of socially responsible investors can lead to under-investment by polluting firms but their current proportion among all investors (11%) is not enough to induce polluting firms to change their technology. The second paper further explores the role of SRI in a richer theoretical framework. We model a capital market in which some investors get direct utility from owning firms that spend on CSR. We also assume different categories of firms: those with good CSR fundamentals and those with poor CSR fundamentals. In equilibrium, investors' CSR considerations shape their financial portfolio decisions, affect stock prices and influence corporate CSR spending decisions. We also examine optimal tax policy questions, looking to maximize total individual donations plus corporate CSR spending less the tax rebates given for such spending. The third paper argues that insiders (managers and large blockholders) who are affiliated with the firm may want to over-invest in CSR for their private benefit since it improves their reputation. We test this hypothesis by investigating the relation between firms' CSR ratings and their ownership and capital structure. We employ a unique dataset that sorts 3,000 US corporations according to their social record. We find that insiders' ownership and leverage are negatively related to the social rating of firms, while institutional ownership is uncorrelated with it. These results support the hypothesis that CSR is a source of a conflict between different shareholders.

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