Essays on corporate social responsibility (CSR) and corporate finance

Abstract

This thesis consists of three essays on Corporate Social Responsibility (CSR) and corporate finance. In the first chapter, we examine whether the Environmental Protection Agency (EPA) uniformly enforces the Clean Air Act for politically connected and unconnected firms using a close election setting. We find no difference in regulated pollutant emissions or EPA investigations between the two groups, though connected firms experience less regulatory enforcement and lower penalties. These results are more pronounced for firms connected to politicians capable of influencing regulatory bureaucrats and for connected firms that are more important to their supported politicians. Taken together, our results show that campaign contributions can indirectly benefit firms through reduced environmental regulatory enforcement and penalties.

In the second chapter, we explore the impact of employee labor unions on external stakeholders by examining unionization's effect on environmental and social (E&S) scores. Recent legislation stipulates that corporations may become more stakeholder-focused if employees are given more power. We find that unionization is associated with a decrease in E&S scores, and these reductions are driven by categories that primarily benefit non-member stakeholders. However, unionization leads to increased categories that help their members, such as better working conditions. Our results are magnified when labor unions have more bargaining power and firms have greater levels of financial constraints. Within a close election setting, unionization leads to decreases in environmental scores by 19.8% and social scores by 21.3%. We highlight stakeholders' heterogeneity and value-maximizing nature and suggest that policymakers consider implications for all stakeholders before implementing policies that prioritize the corporate influence of one stakeholder group.

In the third chapter, we provide a theoretical and empirical analysis of pollution abatement regulation within the context of the Clean Air Act's nonattainment status designation and show that financial constraint is an important determinant of whether spending on mandatory pollution abatement crowds out or stimulates R&D investment and capital expenditure. Further, we show that spending on mandatory pollution abatement and other investments complements financially unconstrained firms but substitutes for financially constrained firms. Financially unconstrained firms invest more and have lower current profits but higher future profits; financially constrained firms to invest less and have stable current profits but lower long-term profits.