Essays on the opportunistic Use of corporate social responsibility

This thesis aims to provide a comprehensive understanding of the opportunistic use of CSR disclosure. This objective is achieved through three interrelated essays; each one tackles a particular CSR-related issue using a sample of UK firms listed on the FTSE All-Share index during the period 2007-2017. The initial sample consists of 4884 firm-year observations from ten industries, namely Telecommunications, Consumer Discretionary, Financial, Consumer Staples, Energy, Health Care, Industrials, Basic Materials, Technology, and Utilities. Based on quantitative methodology, various regression models are applied including ordinary least squares, fixed effect, two-way cluster approach, generalised estimating equation, and generalized method of moments.

The first essay examines the effect of CSR disclosure on firm risk measures, and the moderating role of abnormal audit fees on such a relationship. The agency and stakeholder theories are used to explain the relationship between CSR disclosure and firm risk. Accordingly, a negative relationship between CSR disclosure and two out of three firm risk measures (total and idiosyncratic risk) is found, supporting agency theory that CSR disclosure creates insurance-like protection against negative actions by generating moral capital goodwill among stakeholders. This negative relationship is strengthened when considering abnormal audit fees as a moderating variable, confirming that charging higher audit fees conveys a form of credibility assurance of CSR disclosure. The additional tests show that social and governance disclosures have a negative effect on total risk and idiosyncratic risk. However, environmental disclosure has a negative effect on all firm risk measures, including systematic risk.

Building on the first essay's finding that CSR disclosure generates benefits represented by reducing firm risk, the second essay examines the role of entrenched CEOs in CSR decoupling engagement and the role of strategic shareholders in mitigating such decoupling. Based on a social-political perspective, it is argued that managers may tend to decouple policies and practices to meet stakeholders' expectations and thereby gain political ground. In line with this perspective, this essay finds that entrenched CEOs play a significant role in decoupling between CSR disclosure and performance in order to protect their political interest. This relationship is stronger when firms face high pressures, such as those operating in CSR-intensive industries, and after CSR reporting became mandatory. However, the essay finds that the ability of entrenched CEOs to engage in CSR decoupling is mitigated by the presence of strategic shareholders (institutional and family).

Finally, the third essay examines the effect of CSR-focused governance mechanisms (CSR committees, standalone CSR reports, and CSR contracting) on CSR decoupling. Based on corporate governance bundle perspective, it is argued that the effective corporate should incorporate both monitoring and incentive alignment mechanisms to complement each other to minimise the manger-stakeholder agency problems. This essay finds a negative relationship between these mechanisms and CSR decoupling. This negative relationship is significantly stronger if a standalone CSR report is issued in the presence of a CSR committee. In the same vein, the CSR committee and CSR contracting have a complementary relationship in reducing CSR decoupling. However, such a relationship between CSR reports and CSR contracting is only found in the post-financial crisis period. This essay also finds that the simultaneous presence of all CSR-focused governance mechanisms does not have any additional marginal benefit in reducing CSR decoupling, either during or after the financial crisis period.