Corporate Social Responsibility as a Remedy for Moral Hazard?

Abstract

This study examines whether companies employ corporate social responsibility (CSR) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism, etc.). We exploit plausibly exogenous changes in state unemployment insurance (UI) benefits from 1991 to 2013. Higher UI benefits reduce the cost of being unemployed and hence increase employees' incentives to engage in adverse behavior. We find that higher UI benefits are associated with higher engagement in employee-related CSR. This finding suggests that companies use CSR as a strategic management tool -- specifically, an employee governance tool -- to increase employee engagement and counter the possibility of adverse behavior. We further examine plausible mechanisms underlying this relationship.