Access Type

Open Access Dissertation

Date of Award

January 2023

Degree Type

Dissertation

Degree Name

Ph.D.

Department

Management and Information Systems

First Advisor

Anand Jha

Second Advisor

Manoj Kulchania

Abstract

Stock repurchases are controversial. Researchers often view the positive association between free cash flow and the volume of the stock repurchases to be in the shareholders’ interest and the positive association between executive options and stock repurchases to be in the managers’ interest. Using firms’ corporate social responsibility (CSR) ratings as a measure of ethical culture—one that increases the cost of self-serving behavior for managers— we examine whether a firm’s CSR rating is related to its stock repurchase decisions. Although the baseline regression shows a positive association between CSR and repurchases, we find that CSR amplifies the positive association between free cash flow and stock repurchases and lessens the positive association between executive options and stock repurchases. These results indicate that ethical culture might play a role in repurchase decisions: it may encourage repurchases aligned with shareholders’ interests and discourage those primarily in managers’ interest. Furthermore, we also find that high CSR firms are associated with a greater completion rate of announced repurchase programs and receive more favorable stock market reaction to their repurchase announcements.Next, we examine how Corporate Social Responsibility (CSR) affects corporate decisions regarding divestitures. We find that high CSR firms are more likely to divest unrelated business and see better post-divestiture performance in terms of operating performance and firm value. We find weak evidence on the negative association between CSR and the time to completion of divestiture but find that divestitures by high CSR firms benefit other stakeholders, such as employees, suppliers, and customers, as they are associated with the increase in the number of employee and higher employee productivity, reduction in accounts payable, and the increase in accounts receivable after divestitures. In this regard, our results support the stakeholder-value-maximization view as for divestitures. Overall, our robust set of results suggest that divesting CSR firms increase their operating focus in their core business, thereby improving post-divestiture performance and that CSR encourages firms to make corporate decisions that benefit not only shareholders, but also other stakeholders.

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