Do Firms Become More Responsible after Corporate Social Responsibility Engagement?

Abstract

It depends on the ownership type. We construct a comprehensive outcome measure of firm-level environmental, social, and governance (ESG) impact for 54,599 public and private firms globally from 2007 to 2016 using data from RepRisk. Then, using participation in the United Nations Global Compact as a proxy, we measure the societal impact of corporate social responsibility (CSR) engagements. We demonstrate a striking difference in the societal impact between CSR activities undertaken by public and private firms: while private firms significantly reduce their negative ESG impact after CSR engagements, public firms fail to do so. We attribute this difference to the conflicts of interest between shareholders and stakeholders, as well as managerial myopia, which are more pronounced in public firms than private firms. We then empirically validate this interpretation through examination of scenarios with varying levels of conflict intensity. Meanwhile, we rule out a host of alternative interpretations related to time trends and endogeneity issues. Our results show that CSR engagements may not necessarily lead to better societal outcomes, and that policy interventions aimed at aligning the interests of different parties can potentially improve the overall outcome.