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Another Motive of being a Good Corporate Citizen : Evidence from Securities Class Action Lawsuits

  • Daewoung Choi Economics and Finance Department Louisiana State University Shreveport
  • M. Tony Via Department of Finance Kent State University
  • Weiwei Zhang Department of Finance and Business Law James Madison University
In this study, we investigate the potential relationship between a firm’s CSR activities and corporate securities class action lawsuits. We conjecture that a firm’s CSR engagements could be driven by the potential reputation loss in case of lawsuits. We find that the incidence of a corporate lawsuit has a significant and positive impact on a firm’s CSR activities subsequently. In addition, firms achieve their higher CSR score by boosting their CSR strengths scores following the litigation. We employ the state lawsuit ease index and the state lawsuit intensity index in a two stage least squares methodology to establish the causality of lawsuits on a firm’s CSR activities. We additionally document the causal effect of other corporate misconduct on firm CSR activities, i.e., earnings management and restatements. Our results support the notion that firms strategically use CSR to alleviate reputational loss due to securities lawsuits or earnings manipulation.

  • Daewoung Choi
  • M. Tony Via
  • Weiwei Zhang
In this study, we investigate the potential relationship between a firm’s CSR activities and corporate securities class action lawsuits. We conjecture that a firm’s CSR engagements could be driven by the potential reputation loss in case of lawsuits. We find that the incidence of a corporate lawsuit has a significant and positive impact on a firm’s CSR activities subsequently. In addition, firms achieve their higher CSR score by boosting their CSR strengths scores following the litigation. We employ the state lawsuit ease index and the state lawsuit intensity index in a two stage least squares methodology to establish the causality of lawsuits on a firm’s CSR activities. We additionally document the causal effect of other corporate misconduct on firm CSR activities, i.e., earnings management and restatements. Our results support the notion that firms strategically use CSR to alleviate reputational loss due to securities lawsuits or earnings manipulation.
Corporate Social Responsibility, Corporate Securities Class Action Lawsuits, Earnings Management, Earnings Restatement.