Is managerial entrenchment always bad? A CSR approach

In this paper, we argue that managerial entrenchment may be positive when there is excessive external pressure from financial markets. In these situations, managers have more freedom to implement value-enhancing strategies, such those related to corporate social responsibility (CSR) activities. This is a good-type of entrenchment. On the other hand, when the external pressure is not so high, given that the pressure is from inside the firm, managerial entrenchment is bad and the use of CSR investments may exacerbate the agency problem. We prove this claim in an empirical study conducted of 279 international firms that operate in 22 different countries for the period 2002-2005. These firms participate in two different institutional contexts: that of the Anglo-Saxon countries, where the pressure of financial markets is intensive, or that of the Continental European countries in which the corporate control mechanisms are mainly internal.

Managerial Entrenchment and Corporate Social Performance.

We examine empirically the relationships amongst managerial entrenchment practices, social performance, and financial performance.We hypothesize that entrenched managers may collude with non-shareholder stakeholders in order to reinforce their entrenchment strategy; this is particularly so in firms that have efficient internal control mechanisms. Moreover, we prove that the combination of entrenchment strategies and the implementation of socially responsible actions have particularly negative effects on financial performance. We test these contentions with a sample of 358 companies, from 22 different countries, for the period 2002–2005.Corporate governance; Corporate social performance; Earnings management; Stakeholder activism;

Multiple goals and ownership structure : effects on the performance of Spanish savings banks.

Spanish savings banks (SBs) are financial institutions with a wide mission that includes different stakeholders’ goals. Profit maximization is only one among several goals, and the widespread use of cost or profit efficiency as the only comparative performance measure may prove to be insufficient in this context. To overcome this problem, we build an aggregate performance index for organizations with multiple goals. Furthermore, we show how the ownership structure of SBs influences their economic behavior in two basic ways: (1) the performance level and (2) their goal priorities. In particular, we distinguish two types of ownership structures in our application, namely, organizations controlled by Public Administrations and those controlled by insiders (i.e. managers and workers). Our results indicate that each type has different priorities and differ in their performance indexes. More specifically, the empirical analysis shows that insider-controlled SBs favor goals related to profit maximization and the universal access to financial services and, furthermore, they perform better. In contrast, contributing to regional development becomes the most favored goal when Public Administrations have a majority in the bank.

CORPORATE ETHICAL IDENTITY AS DETERMINANT OF FIRM PERFORMANCE: A TEST OF THE MEDIATING ROLE OF STAKEHOLDER SATISFACTION

In this article, we empirically assess the impact of the Corporate Ethical Identity (CEI) on the firm’s financial performance. Drawing on formulation of both normative and instrumental stakeholder theory, we argue that firms with a strong ethical identity achieve greater degree of stakeholder satisfaction, which in turn, positively influence the firms’ financial performance. We further analyze two different dimensions of the CEI of firms: corporate revealed ethics and corporate applied ethics. Our results indicate that while revealed ethics has informational worth and enhance shareholder value, applied ethics has a positive impact through the improvement of stakeholder satisfaction. However, revealed ethics by itself (i.e. decoupled from ethical initiatives) is not sufficient to boost economic performance.

Corporate ethical identity as a determinant of firm performance : a test of the mediating role of stakeholder satisfaction.

In this article, we empirically assess the impact of corporate ethical identity (CEI) on a firm’s financial performance. Drawing on formulations of normative and instrumental stakeholder theory, we argue that firms with a strong ethical identity achieve a greater degree of stakeholder satisfaction (SS), which, in turn, positively influences a firm’s financial performance. We analyze two dimensions of the CEI of firms: corporate revealed ethics and corporate applied ethics. Our results indicate that revealed ethics has informational worth and enhances shareholder value, whereas applied ethics has a positive impact through the improvement of SS. However, revealed ethics by itself (i.e. decoupled from ethical initiatives) is not sufficient to boost economic performance.Business ethics; Corporate ethical identity; Financial performance; Stakeholder satisfaction; Stakeholder theory;

Are socially responsible managers really ethical? : exploring the relationship between earnings management and corporate social responsibility.

Manuscript Type: Empirical Research Question/Issue: This paper investigates the connection between earnings management and corporate social responsibility (CSR). We argue that earnings management practices damage the collective interests of stakeholders; hence, managers who manipulate earnings can deal with stakeholder activism and vigilance by resorting to CSR practices. Research Findings/Insights: Using archival data from a multi-national panel sample of 593 firms from 26 countries between 2002 and 2004, we find a positive impact of earnings management practices on CSR; this relationship holds for different robustness checks. Also, we demonstrate that the combination of earnings management and CSR has a negative impact on financial performance. Theoretical/Academic Implications: This study draws on a generalized agency theory where managers are seen as the agents of all stakeholders and the earnings management literature to highlight that CSR can be used to garner support from stakeholders and, therefore, provides an opportunity for entrenchment to those managers that manipulate earnings. As such, it suggests new avenues of research for both the corporate governance literature, as well as for the stakeholder perspective. Practitioner/Policy Implications: This study offers insights for policy makers and managers interested in enhancing CSR. For managers, our findings suggest that projecting a socially-friendly image in order to disguise earnings management cannot be sustained over time due to the detrimental effect on financial performance. In addition, this study provides a warning signal to policy makers thatCorporate social responsibility; Earnings management;

The Influence of Blockholders on R&D Investments Intensity: Evidence From Spain

Using data from 3,638 Spanish firms between 1996 and 2000, this article studies the relationship between the presence of large shareholders in the ownership structure of firms and R&D investment. Consistent with our theoretical contention, our results indicate that the impact of large shareholders on the R&D investment is (1) negative when blockholders are banks, (2) positive when blockholders are non-financial corporations, and (3) null when blockholders are individuals. In addition, we find a systematic negative relationship between the number of blockholders and R&D investment. Finally, we extend our study by analyzing the influence that the combined effect between blockholder type and R&D investment has on the firm’s economic performance. Results of this work provide relevant implications for policy makers and academic research.

The effect of social capital on financial capital

We study the effect of social capital on financial capital. Specifically, we study how similarity (matching) of borrowers’ and lenders’ cohorts along their corporate social responsibility dimension affects the cost of debt financing. The main finding is that borrowers’ ethical posture alone is not enough for obtaining cheapest rates. Favorable loan conditions are obtained when both lenders and borrowers belong to similar cohorts attributing high value for social responsibility aspects. Employing an international database composed of 4,554 syndicated loans involving 175 corporations in 15 different countries for the period 2003-2006 we document a large and significant reduction in lending rates when both borrowers and lenders belong to similar cohort along the social responsibility dimension. These results withstand a battery of robustness tests.Corporate social responsibility, Financing costs, Lenders

Corporate responsibility and financial performance : the role of intangible resources.

This paper examines the effects of a firm’s intangible resources in mediating the relationship between corporate responsibility and financial performance. We hypothesize that previous empirical findings of a positive relationship between social and financial performance may be spurious because the researchers failed to account for the mediating effects of intangible resources. Our results indicate that there is no direct relationship between corporate responsibility and financial performance—merely an indirect relationship that relies on the mediating effect of a firm’s intangible resources. We demonstrate our theoretical contention with the use of a database comprising 599 companies from 28 countries.

EARNINGS MANAGEMENT AND CORPORATE SOCIAL RESPONSIBILITY

Drawing on stakeholder-agency theory and the earnings management framework, we explore the relationship between discretionary accounting accruals and corporate social responsibility. We hypothesize a positive connection between corporate social responsibility and earnings management. We argue that managers may satisfy the interest of stakeholders as an entrenchment strategy once these managers have followed earnings management practices, thereby damaging the long-term interests of shareholders. Also, we expect that the positive connection between corporate social responsibility and financial performance is negatively moderated when combined with earnings management practices. We empirically demonstrate our theoretical contention making use of a database comprising of 599 firms from 32 different nations for the period 2002-2004.