Relation between Corporate Governance, CSR and Firm Value

What is it about?

This study investigates the effects of internal and external corporate governance and monitoring mechanisms on the choice of corporate social responsibility (CSR) engagement and the value of firms engaging in CSR activities. The study finds the CSR choice is positively associated with the internal and external corporate governance and monitoring mechanisms, including board leadership, board independence, institutional ownership, analyst following, and antitakeover provisions, after controlling for various firm characteristics. This study shows that CSR engagement positively influences firm value measured by industry-adjusted Tobin’s q and that the impact of analyst following for firms that engage in CSR on firm value is strongly positive, while the board leadership, board independence, blockholders’ ownership, and institutional ownership play a relatively weaker role in enhancing firm value. Furthermore, we find that CSR activities that address internal social enhancement within the firm, such as employees diversity, firm relationship with its employees, and product quality, enhance the value of firm more than other CSR subcategories for broader external social enhancement such as community relation and environmental concerns.

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Why is it important?

Firms' CSR performance combined with strong external corporate governance as monitoring mechanisms for CSR investments tend enhance firms' value.