Kiyoung Chang

Does Corporate Social Responsibility (CSR) Improve Credit Ratings? Evidence from Geographic Identification

We show that a firm’s CSR policy is significantly influenced by the CSR policies of firms in the same 3-digit zip code, an effect possibly due to investor clienteles, local competition, and/or social interactions. We then exploit the variation in CSR across the zip codes to estimate the effect of CSR on credit ratings under the assumption that zip code assignments are exogenous. We find that more socially responsible firms enjoy more favorable credit ratings. In particular, an increase in CSR by one standard deviation improves the firm’s credit rating by as much as 4.5%.

The Impact of Operational Diversity on Corporate Philanthropy: An Empirical Study of U.S. Companies

This paper investigates the impact of diversity on corporate philanthropy. Compared to previous studies that have considered the influence of board diversity and CEO gender on corporate philanthropy, this study introduces the concept of operational diversity, which is the implementation of diversity programs at management, employee, and supply chain levels, and further, it explains why operational diversity influences corporate philanthropy, by using the premises of resource dependence theory. Second, this study also investigates the influence of board diversity on corporate philanthropy. Third, this study uses a large sample of U.S. firms over the period of 1991–2009 and tries to mitigate possible omitted variables and endogeneity problems that are often overlooked in previous research. We demonstrate that firms with operational diversity programs are likely more dependent on a broad variety of resources and give more to community as a strategic maneuver; hence, operational diversity is a better indicator for predicting future corporate giving than board diversity alone. However, having a woman or a member of a minority as a company’s chief executive officer is not sufficient to impact its charitable giving. A battery of robustness tests support our conclusion and confirm that our results are not driven by a firm’s general corporate social responsibility (CSR) score, gender or independence of board members, or firm ownership. This paper will assist researchers, practitioners, and other stakeholders in deepening their understanding of the predictors of corporate giving.

The Heterogeneous Impact of Corporate Social Responsibility Activities that Target Different Stakeholders

We aggregate different dimensions of corporate social responsibility (CSR) activities following the stakeholder framework proposed in Clarkson (Acad Manag Rev 20(1), 92–117, 1995) and present consistent evidence that CSR strengths targeting different stakeholders have their unique impact on firm risk and financial performance. Institutional CSR activities that target secondary stakeholders are negatively associated with firm risk, measured by total risk and systematic risk. Technical CSR that target primary stakeholders are positively associated with firm financial performance, measured by Tobin’s Q, ROA, and cash flow returns. Our results, based on a sample of S&P 500 component firms over the period of 1995–2009, are consistent with the risk management view of “altruistic” CSR activities and with the stakeholder salience theory. We also show that the impact of CSR activities on risk varies with the ethical climate, as proved in our subsample analyses on pre- and post-Sarbanes–Oxley periods. Our empirical analyses mitigate possible omitted variables and endogeneity concerns that are often overlooked in previous research. Our findings are robust to alternative CSR measures, to alternative risk and performance measures, and to alternative estimation methods.

Does Corporate Board Diversity Affect Corporate Payout Policy

This paper investigates whether board diversity has a significant impact on corporate payout decisions. Previous studies exclusively focus on examining the relation between a measure of firm performance and board diversity. The major advantage of our study is to investigate the direct impact of board diversity on a major corporate decision - i.e., dividend payout policy. We find that firms with diverse boards are more likely to pay dividends and tend to pay larger dividends than those with non-diverse boards. After controlling for various firm characteristics and exploring alternative explanations for the positive association between board diversity and dividend payout policy, our results suggest that board diversity has a significant impact on dividend payout policy. The impact of board diversity on dividend payout policy is particularly conspicuous for firms with potentially greater agency problems of free cash flow, suggesting that diverse board helps mitigate the free cash flow problem. Our findings are consistent with the argument that board diversity enhances the monitoring function of directors for the benefit of shareholders. We also show that significantly larger portion of firms pay dividends after they added a diverse director to their boards and that firms pay significantly higher dividends after adding a diverse director for the first time. However, the change in dividend payout ratio is not significant when firms add another diverse director to their already diverse boards. Also, the benefits of board diversity are not materialized when directors share the same gender or ethnic tie with the CEO. Our findings have an important implication for policies aiming to increase the number of diverse directors in corporate boardrooms. What makes the significant difference is not the sheer number of diverse directors in the board but the diversity they bring to the board.

Effect of institutional ownership on dividends: An agency-theory-based analysis

This study addresses the debate over the relation between institutional ownership and dividend payout through the lens of the agency theory. We hypothesize that only institutional investors with certain traits are likely to monitor and conditioning on firms’ financial performance, they will use dividend payout to mitigate the firms’ agency problems. We find the following supporting evidence: (1) there is a positive relation between lagged long-term and concentrated institutional ownership and dividend payout ratio; (2) the positive relation is more salient when the firm has high agency costs; and (3) the positive relation is more salient when external monitoring is weak. These findings support the monitoring role of institutional investors and dividend payout as an ad hoc monitoring device. We document the interactions of dividend payout with other monitoring mechanisms that are consistent with the predictions from both outcome and substitution models based on agency theory.

Corporate social responsibility, credit rating, and private debt contracting: new evidence from syndicated loan market

We examine the impact of corporate social responsibility (CSR) activities on loan spreads of syndicated bank loans, with a particular interest in how CSR and credit ratings are interrelated as a joint determinant of loan spreads. Focusing on private debt contracts, we show that both CSR strengths and concerns are related to their loan spreads. CSR strengths work to lower firm risk, hence reducing the loan spread, whereas CSR concerns increase firm risk, thus increasing the loan spread. Once we include detailed credit rating information in the models, however, CSR concerns lose significance, but CSR strengths remain significantly related to the loan spread. We also find that both CSR strengths and CSR concerns are related to loan spread for non-rated firms, but the CSR concern effect is stronger than the CSR strength effect for these firms. A further test shows that firm risk measured by stock return volatility plays as a direct channel through which a firm’s CSR activities affect loan spreads, whose result lends further support to our main results. Overall, our results provide strong evidence that CSR matters to the pricing of loan contracts beyond credit rating information and the results remain robust to the possible firm size effect and the endogeneity issues.

The impact of corporate social responsibility activities on corporate financing: a case of bank loan covenants

ABSTRACT We examine the impact of corporate social responsibility (CSR) activities on the intensity of loan covenants, one of the most important nonpricing terms of syndicated loan contracts. Undocumented in the existing literature, we offer new evidence that while CSR strengths have little impact on loan covenants, CSR concerns lead to stricter loan covenants. These asymmetric results suggest that while lenders view CSR strengths as discretionary, they are more concerned about value-destroying CSR concerns, which induces the lenders to screen out firms engaging in nonsocially responsible activities and penalize these firms with stricter loan covenants. Combined with the evidence on the CSR-loan spread association in the existing literature, our results provide strong evidence that CSR matters to both pricing and nonpricing terms of loan contracts.

Local long-term institutions, growth and cash holdings

We provide empirical evidence that support both ‘outcome’ and ‘substitute’ models of agency theories related to cash holding. Local long-term institutional investors are associated with lower excess cash in firms with less growth and easier access to external financing, and with higher excess cash in firms with higher growth in our US sample.

DOES GLOBALIZATION INCREASE BANK EFFICIENCY AS MEASURED BY NET INTEREST MARGIN

This study examines how the level of globalization as well as the incremental globalization of each country is associated with bank efficiency, which is measured by banks’ net interest margin (NIM). Using a panel of 35,501 observations in 141 countries over the period of 1987–2008, we find that there exists an inverse relationship between NIM and change in globalization of each country, which implies that globalization reduces banks’ NIM and improves the efficiency of banking system. However, this relationship only holds for bigger banks, but not for smaller banks.

Does Geographic Proximity Change the Passiveness of Equity Ownership by Bank Trust?: Local Bank Trust Ownership and Risk Taking

We provide evidence that while concentrated bank trust ownership is passive with distant firms, it is nonpassive with local firms and reduce their risk‐taking. Concentrated local bank trust ownership is associated with (i) lower future firm equity beta and (ii) less uncertain corporate policies. The results cannot be explained by private information alone, are not driven by local bank trusts as a mixed debt‐equity holder, and are robust to various tests for endogeneity. We also explore channels through which local bank trusts could exert their influence, including their stabilizing function during crisis periods and joining force with local independent directors.