CSR as a benefit or a burden: Diversified Time-oriented Investors’ Reaction on IPO Market

Abstract

This paper investigates the underlying mechanism which determines the insurance or backfire role of CSR in the case of audiences’ reaction to corporate misbehaviors. We specify corporate philanthropy for CSR and employee underpayment for corporate misbehavior. By categorizing investors on IPO market in terms of their time orientation, we propose that short-term oriented investors (VCs) react negatively to corporate philanthropy in the case of employee underpayment while the long-term oriented investors (institutional investors) hold the positive reaction. To be more general, CSR can provide insurance for the firm in the case of corporate misconduct if the audiences are long-term oriented but can contrarily bring about burden if the audiences are short-term oriented. Analyzing a 5-year (2016-2020) panel of IPO firms in China comprising 1214 observations, we find general support for our ideas. Our findings bridge the two viewpoints of the current literature (insurance-like effect and backfire effect) and identifies a crucial boundary condition that the time orientation of audiences matter to determine whether corporate philanthropy is a benefits or burden.