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Firms behaving badly? Investor reactions to corporate social irresponsibility
Author(s) -
Kanuri Vamsi K.,
Houston Reza,
Andrews Michelle
Publication year - 2020
Publication title -
business and society review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.524
H-Index - 21
eISSN - 1467-8594
pISSN - 0045-3609
DOI - 10.1111/basr.12193
Subject(s) - harm , business , context (archaeology) , blame , corporate law , punishment (psychology) , perception , competition (biology) , accounting , corporate governance , finance , psychology , social psychology , paleontology , ecology , neuroscience , biology
Corporate social irresponsibility (CSI) and other questionable business incidents that appear to harm stakeholders frequently afflict firms yet draw disparate investor reactions. We address this disparity by investigating the association between firm legal orientation and investor reactions to CSI. We hypothesize the proportion of board members and top management team (TMT) executives with law degrees affects investor perceptions of firm foresight, and in turn, their judgment of blame and consequent punishment. Based on abnormal returns to 629 announcements of CSI and 308 publicly traded S&P 500 firms, we find that both too small and too large a proportion of board of directors and TMT members with law degrees lead investors to mete out harsher punishment. This inverted u‐shaped link is further affected by firm size, firm risk, and industry competition. Our investigation sheds light on the link between executive education and financial performance in the context of CSI and investor perceptions of foresight.