Essays on corporate social responsibility

The thesis comprises three empirical chapters on the determinants of corporate social responsibility activities. Chapter 2 contributes to our understanding of how firms adopt more stakeholder-friendly policies to meet the expectations and preferences in CSR of their customers for legitimacy purposes. Chapter 3, studies whether the characteristics surrounding geographical areas near a firm's headquarters, as captured by legal heritage, can foster its engagement in CSR activities to conform to the regional norms and values. Chapter 4 investigates how firms’ CSR performance is influenced when they are socially connected to firms involved in a corporate scandal. In Chapter 2, we use data on offshore activities by U.S. publicly listed companies, and document that firms selling to countries characterized by higher social capital respond to customer demand for corporate social responsibility (CSR) by increasing their CSR strengths but not CSR-concerns. The improved social performance stems from the adoption of firm policies that are favorable to the employees and diversity. The effect persists after controlling for country economic development and legal origins and is robust to an alternative social-capital measure constructed based on Google search data. Subsample tests show that the positive effect concentrates on industries that sell predominantly to businesses (as opposed to end consumers) and have low environmental activism. Overall, our evidence is consistent with firms seeking legitimacy vis-à-vis their business customers through engaging in socially responsible activities. In chapter 3, we document that firms headquartered in U.S. counties where the majority of residents trace their ancestral roots to civil law countries have significantly higher (lower) CSR strengths (concerns). The results provide empirical evidence consistent with the conjectures that the attribute of civil law is associated with being stakeholder-oriented. This finding is robust in instrumental variable regressions, using immigration from England at the turn of the 19th century as an instrument. The results also hold when employing propensity score matching and difference-in-differences regressions using firm headquarters relocations as a design. Further tests indicate that the positive effect is concentrated in low polluting industries rather than high polluting industries. These findings support arguments in the literature that the altruistic inclination of the region might also play a role in a firm’s decision to adopt socially responsible policies. In Chapter 4, we test how firms respond to corporate violations when they are located in a county that is socially connected to the scandal area. We find that the sudden shock to the perceived legitimacy risk leads firms to increase their CSR strength, but not change their CSR vi concerns. Overall, the firm’s response to the announcement of corporate violations is consistent with the salience effect, as increased media scrutiny increases the perceived risk of legitimacy loss. Consequently, firms will increase their socially responsible initiatives as a strategic hedge against this risk. The improved CSR performance is attributed to implementation of stakeholder-friendly policies regarding employee relations and the community. Subsample tests document that the results vary across different industries and we find that the positive effect concentrates on high-polluting industries and firms faced with highly competitive pressure. Overall, these findings support that the firm’s reaction to corporate violations is consistent with the salience effect