Two Essays on Corporate Social Responsibility, Investments and Firm Risk


Student thesis: Doctoral Thesis

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  • Weijie LU

Related Research Unit(s)


Awarding Institution
Award date1 Sept 2015


This thesis involves two essays on corporate social responsibility (CSR), investments and firm risk, both of which attempt to explore how CSR efforts and policies would affect firm value, financial performances and other related firm-level variables through the channel of corporate cultural spillover and employee satisfaction respectively. Standard event study methods are employed to assess market's immediate reaction to CSR. Conventional models including ordinary least squares (OLS) panel regressions, Probit and Tobit regressions are employed to thoroughly analyze how does CSR influence firms in terms of corporate cultural spillover and employee satisfaction with a bunch of control variables that measure firms' profitability, firm size, growth opportunity, leverage and so on.

Recent research has documented that firms' social performances have huge impacts on mergers and acquisitions (M&A) outcomes. Using a large sample of U.S public firm data, the first essay tests several theories of whether and how the cultural differences measured by adjusted corporate social responsibility (CSR) scores of the acquirer and the target affect short- and long-term post-M&A performances. Consistent with the stakeholder value maximization view, I find that a firm's shareholders react positively to the deals that involve high CSR acquirers buying targets with low CSR scores and targets without CSR ratings. These "cultural spillover" deals improve firms' immediate announcement returns (CARs), post-M&A operating performances as well as long-term abnormal stock returns. Nonetheless, there is little evidence of positive reactions from investors for "cultural learning" deals consisted of low/no CSR acquirers and high CSR targets. These results suggest that acquirer-target cultural spillover measured by firms' social responsibility scores is an important determinant of M&A performance, thus rejecting the alternative hypothesis that the cultural differences affect their immediate as well as the long-term abnormal returns. The essay also finds that deals with CSR-rated acquirers realize higher M&A announcement returns compared to the deals with non-rated acquirers, implying that CSR ratings produce valuable information to financial market. Additionally, the results of univariate tests on daily stock market trading volume and M&A premiums reveal that investors tend to react more favorably to acquirers' "responsible" news like being rated with CSR scores.

The second essay addresses the issue of whether employee satisfaction influences employee turnovers, firms' operating performances and financial risk. Consistent with human relations theories of the firm, results show that firms' CSR scores are positively related to employee satisfaction measured by Fortune reputation scores. Specifically, higher CSR scores of overall attributes, attributes in employee relations and employee related lead to lower employee turnovers through the channel of employee satisfaction. Moreover, higher CSR scores in the aforementioned attributes also lead to lower systematic risk and better operating performances. In my empirical tests, I address potential endogeneity concerns by instrumenting CSR using data on the political affiliation of the firm's headquartered county. Overall, the second essay contributes to the literature by identifying an important mechanism that higher corporate social performance reduces firm risk and leads to stronger corporate performances through the channel of employee satisfaction.