Wednesday, September 18, 2013

Doing "Good" with Other People's Money

Do managers over-indulge in corporate social responsibility (CSR)? Principle/agent suggest that they may over-fund their favorite philanthropic cause if it comes our of shareholder wealth and not their own. In "Do Managers Do Good with Other People's Money?," Cheng, Hong, and Shue examine what happens when insiders have a bigger stake in the company, that is, when more of the "doing good" comes out of their own pocket. When the 2003 Dividend Tax Cut to increased after-tax insider ownership, they observed:
First, increasing managerial ownership decreases measures of firm goodness.
 and
Second, increasing monitoring reduces corporate goodness.

That is, when shareholders could vote on CSR proposals, they tended to slow the growth.

2 comments:

  1. This discussion would seem to indicate that the degree that the individual, rather they be corporate offices or individual stockholders, experience charitable giving as having a direct cost to themselves, those costs appear to offset the intrinsic satisfactions and rewards of such philanthropy. From a policy perspective that would appear to contradict the argument of those who say that removing the individual and/or corporate reduction for charitable giving, which now reduces the direct cost of such giving, will have no net effect (or a negligible effect) on the amount given to charity.

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  2. When it comes to other’s money, it’s important to be extra careful, as that’s how it is with others stuff. I always believe that we should always work on our own instead of depending on others. At the moment I am trading in Forex market where I get great benefits especially thanks to my broker OctaFX, it’s a highly rated company with having massive benefit for investors with providing 50% bonus on deposit, it’s a really good amount to have and makes me trade so much better.

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