Share this page
| More

Tuesday 17 February 2015

Do Leveraged Firms Underinvest in Corporate Social Responsibility? Evidence from Health and Safety Programs in U.S. Firms

The article "Do Leveraged Firms Underinvest in Corporate Social Responsibility? Evidence from Health and Safety Programs in U.S. Firms" by Christophe Moussu, Steve Ohana published in Journal of Business Ethics

Abstract

The explosion of health-related costs in U.S. firms over more than a decade is a huge concern for managers. The initiation of Health and Safety (H&S) programs at the firm level is an adequate Corporate Social Responsibility (CSR) initiative to contain this evolution. However, in spite of their documented efficiency, firms underinvest in those programs. This appears as a puzzle for health economists. In this paper, we uncover a strong negative relation of financial leverage to the implementation of H&S programs. The negative impact of debt on investment and CSR activities is generally interpreted as an efficient disciplinary effect of debt on managers. H&S are particularly well suited to revisit this evidence, given their strong profitability and homogeneity across firms. Very interestingly, the negative effect is stronger for firms with high free cash flows, for which debt is used to prevent overinvestment. This strongly suggests that debt, while disciplining managers, also discourages investments which are  aluable both for firms and society.

 

Prof. Ohana is an assistant professor of finance at ESCP Europe

Pof. Moussu teaches Corporate Finance and Financial Theory and he is currently head of the Major in Finance in the Master in Management Programme

<- Back to: News