Researchers have reported a positive, negative, and neutral impact of corporate social responsibility (CSR) on financial performance. This inconsistency may be due to flawed empirical analysis. In this paper, we demonstrate a particular flaw in existing econometric studies of the relationship between social and financial performance. These studies estimate the effect of CSR by regressing firm performance on corporate social performance, and several control variables. This model is misspecified because it does not control for investment in R&D, which has been shown to be an important determinant of firm performance. This misspecification results in upwardly biased estimates of the financial impact of CSR. When the model is properly specified, we find that CSR has a neutral impact on financial performance. Copyright © 2000 John Wiley & Sons, Ltd.

Corporate social responsibility and financial performance: correlation or misspecification?

Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies

Additional evidence on the association between the investment opportunity set and corporate

Manuscript Type: Conceptual (Review)

Research Question/Issue: This review examines how gender diversity on corporate boards influences corporate governance outcomes that in turn impact performance. We describe extant research on theoretical perspectives, characteristics and impact of women directors on corporate boards (WOCB) at micro, meso and macro levels: individual, board, firm and industry/environment.

Research Finding/Insights: To the best of our knowledge, this is the first comprehensive review of WOCBs, incorporating and integrating research from over 400 publications in psychology, sociology, leadership, gender, finance, management, law, corporate governance and entrepreneurship domains. In addition, we organized our findings to provide a new lens enabling the field to be readily examined by level and by theoretical perspective. The review indicates that WOCB research is about improving corporate governance through better use of the whole talent pool’s capital, as well as about building more inclusive and fairer business institutions that better reflect their present generation stakeholders.

Theoretical/Academic Implications: With only one in ten papers addressing theoretical development, the predominant perspectives are human and social capital theories and gender schema at individual level; social identity, token and social networks theories at board level; resource dependency, institution and agency theories at firm level, and institutional, critical and political theories at environmental level. We provide a short synopsis of findings at each level, and conclude with an outline of fruitful directions for future research.

Practitioner/Policy Implications: There are increasing pressures for WOCBs, from diverse stakeholders such as the European Commission, national governments, politicians, employer lobby groups, shareholders, Fortune and FTSE rankings, best places for women to work lists as well as expectations from highly qualified women who are likely to leave if they see no women board members. Rationales generally draw on the business case, however the moral justice case is also used by those who seek a fairer gender balance in all aspects of society. From our review, the ‘Impact’ section charts the effect of WOCB at all four levels of analysis.

/pdf/women-directors-on-corporate-boards-a-review-and-research-291ijfwxtw.pdf

Women Directors on Corporate Boards: A Review and Research Agenda

The idea that managerial discretion—defined as latitude of action—may be an important determinant of CEO compensation has been recognized for some time. However, in spite of considerable work that ...

How Much Does the CEO Matter? The Role of Managerial Discretion in the Setting of CEO Compensation

This paper employs contingent claims analysis to decompose the firm's systematic risk into the risk as- sociated with its assets in place and the risk arising from future growth opportunities. 5 Contingent claims analysis is well-suited to such decomposition, since a growth opportunity can be regarded as a call option on a real asset where the option's exercise price is the fu- ture investment needed to acquire the asset. Whether the option has any value at expiration depends on the asset's future value. In essence, this study predicts that the greater the portion of a stock's market value ac- counted for by the firm's growth opportunities, the higher the stock risk. Overall, our empirical results strongly support this hypothesis.

Investment Options, Assets in Place, and the Risk of Stocks

In this study, we argue that share price reaction to a firm's capital expenditure decisions depends critically on the market's assessment of the quality of its investment opportunities. We postulate that announcements of increases (decreases) in capital expenditures positively (negatively) affect the stock prices of firms with valuable investment opportunities. Contrarily, we predict that announcements of increases (decreases) in capital spending negatively (positively) affect the share prices of firms without such opportunities. Our empirical results are generally consistent with these predictions. Overall, empirical evidence supports our conjecture that it is the quality of the firm's investment opportunities rather than its industry affiliation which determines the share price reaction to its capital expenditure decisions.

/pdf/investment-opportunities-and-market-reaction-to-capital-2yijwyducn.pdf

Investment opportunities and market reaction to capital expenditure decisions

https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=2760&context=lkcsb_research

Investor reaction to women directors

This study views the firm's future investment opportunities as operating options and examines the effect of growth opportunities on the firm's systematic risk using contingent claims analysis. The study predicts that the greater the portion of a stock's market value accounted for by the firm's growth opportunities, the higher the systematic risk. Overall, our empirical results strongly support this hypothesis. Furthermore, including firm size in empirical analysis does not significantly change the relationship between the stock beta and growth variables. Thus, we conclude that the effect of growth on stock risk is independent of firm size.

This study examines the intertemporal and cross-sectional association between the bid-ask spread and insider trading. Empirical results from the cross-sectional regression analysis reveal that market makers establish larger spreads for stocks with a greater extent of insider trading. The time-series regression analysis, however, finds no evidence of spread changes on insider trading days. These results suggest that although market makers may not be able to detect insider trading when it occurs, they protect themselves by maintaining larger spreads for stocks with a greater tendency of insider trading. The results also reveal that market makers establish larger spreads when there are unusually large transactions. In addition, this study finds that spreads are positively associated with risk and negatively with trading volume, the number of exchange listings, share price, and firm size.

Charlie Charoenwong

Papers

Investment Options, Assets in Place, and the Risk of Stocks

Investment opportunities and market reaction to capital expenditure decisions

Investor reaction to women directors

Investment Options, Assets in Place, and the Risk of Stocks

Insider Trading and the Bid-Ask Spread