Exploring how independent directors view CSR inequality using a quasi-natural experiment

Date17 August 2020
Pages1159-1172
Published date17 August 2020
DOIhttps://doi.org/10.1108/CG-03-2020-0086
AuthorViput Ongsakul,Napatsorn Jiraporn,Pornsit Jiraporn
Subject MatterStrategy,Corporate governance
Exploring how independent directors
view CSR inequality using a
quasi-natural experiment
Viput Ongsakul, Napatsorn Jiraporn and Pornsit Jiraporn
Abstract
Purpose The purpose of this paperis to explore corporate social responsibility(CSR) inequality, which
is the inequalityacross different CSR categories. Higherinequality suggests a less balancedCSR policy.
To determineif CSR inequalityis beneficial or harmful, this paper investigateshow independent directors
view CSR inequality, using an exogenous regulatory shock introduced by the passage of the
SarbanesOxleyAct.
Design/methodology/approach To draw causality, this study relies on a quasi-natural experiment
based on an exogenous regulatory shock that forced certain firms to raise board independence. This
approach is significantlyless vulnerable to endogeneity and is much more likely to show a causaleffect.
The results using propensity score matching, principal component analysis and instrumental-variable
analysisare confirmed.
Findings The difference-in-difference estimates show thatindependent directors view CSR inequality
unfavorably. Specifically, board independence diminishes CSR inequality by approximately 34%-43%.
Becausethe empirical strategy is based on a quasi-naturalexperiment, the results aremore likely to show
causality.The results also imply that CSR inequalityis a crucially important aspect of CSR.
Originality/value Although a substantial volume of research has examined CSR, one vital aspect of
CSR has been largelyunexplored. Filling this void in the literature,the CSR inequality is investigated. The
study is the first to explore how independent directors view CSR inequality using a quasi-natural
experiment.
Keywords CSR, Board independence, Corporate governance, Independent directors
Paper type Research paper
1. Introduction
Corporate social responsibility (CSR) constitutes a crucial area of research that spans
several disciplines, including management, finance, accounting and marketing. While most
research focuses on the effect of CSR on firm performance, one crucial aspect of CSR has
attracted little attention that is the inequality across different CSR activities.
Corporations invest billions of dollars in several CSR activities, some related to the
environment, others to employee relations or diversity. One argument is that firms should
treat all stakeholders more or less equally and should make similar investments in different
CSR activities, resulting in low CSR inequality. On the other hand, it could be argued that
various firms have different needs and different stakeholders are not equally important.
Therefore, firms should invest more in certain CSR activities than others, leading to higher
CSR inequality.
Theory suggests that firms should balance the interests of all stakeholders (Clarkson, 1995;
Donaldson and Preston, 1995;Jawahar and McLaughlin, 2001;Jones, 1995). Companies
may use CSR to resolve conflicts among the stakeholders (Jensen, 2001;Scherer and
Viput Ongsakul is based at
the National Institute of
Development
Administration, Bangkok,
Thailand and Securities and
Exchange Commission
(SEC) of Thailand,
Bangkok, Thailand.
Napatsorn Jiraporn is
based at the State
University of New York,
Oswego, New York, USA.
Pornsit Jiraporn is based at
Penn State University,
Malvern, Pennsylvania,
USA and Center of
Excellent in Management
Research for Corporate
Governance and
Behavioral Finance, SASIN
School of Management,
Chulalongkorn University,
Bangkok, Thailand.
Received 2 March 2020
Revised 31 May 2020
22 June 2020
4 July 2020
Accepted 18 July 2020
Part of this research was
carried out while Pornsit
Jiraporn was a visiting scholar
at SASIN School of
Management, Chulalongkorn
University in Bangkok,
Thailand. The author would like
to thank SASIN School of
Management for research
support.
DOI 10.1108/CG-03-2020-0086 VOL. 20 NO. 6 2020, pp. 1159-1172, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 1159

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