Harjoto, Maretno A.; Hoje Jo
January 2008
Journal of the Academy of Business & Economics;1/20/2008, Vol. 8 Issue 1, p59
Academic Journal
We examine the effects of internal and external corporate governance and monitoring mechanisms on the firms' choice of corporate social responsibility (CSR) engagement and operating performance engaging in CSR activities. Employing a large and extensive sample during the 1993-2004 period, we find that the CSR choice is associated with governance characteristics including board leadership, board independence, institutional ownership, analyst following, and anti-takeover provisions. After correcting for the endogenous treatment effect, our results show that contrary to the CSR over-investment argument, CSR engagement positively influences firms' operating performance measured by ROA and operating profit. In addition, after correcting the selection bias problem using the instrumental approach, we find that while the impact of external monitoring by analyst following and institutional ownership on operating performance is strongly positive, internal monitoring by board leadership and insider blockholders' ownership, play an adverse role on firm performance and internal monitoring by independent board provides positive impact, but mostly insignificant.


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