Journal of Management & Governance

, Volume 21, Issue 1, pp 93–118 | Cite as

Shareholders and managers: Who care more about corporate diversity and employee benefits?

  • Yixi Ning
  • Zhiwen Xiao
  • Jaesub Lee


We test two competing theories that explain a firm’s engagement in corporate diversity and employee benefits: socially responsible investment theory and management overinvestment theory. We find that publicly-traded companies with strong shareholder rights are more likely to promote women and/or minorities to the positions of CEO and board of directors in their organizations, conduct business with women- and/or minority-owned operations, and provide better family benefits to their employees than firms with strong management power. These findings indicate that the companies with strong shareholder rights engage more actively in internal aspects of CSR activities, which supports the socially responsible investment theory rather than the management overinvestment theory. Shareholders (i.e. institutional investors) tend to integrate their social goals (i.e. internal CSR issues) and financial goals into their investments. In response to these changes, managers should engage in the internal aspects of corporate social issues more aggressively as the agents of shareholders.


Corporate social responsibility (CSR) Socially responsible investment (SRI) Corporate diversity Employee benefits Shareholder rights Management power 


  1. Acemoglu, D., & Angrist, J. (2001). Consequences of employment protection? The case of Americans with Disabilities Act. Journal of Political Economy, 109, 915–956.CrossRefGoogle Scholar
  2. Aktas, N., Bodt, E., & Cousin, J. (2011). Do financial markets care about SRI: Evidences from mergers and acquisitions. Journal of Banking and Finance, 35, 1753–1761.CrossRefGoogle Scholar
  3. Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97, 71–86.CrossRefGoogle Scholar
  4. Becchetti, L., Ciciretti, R., Dalo, A., & Herzel, S. (2015). Socially responsible and conventional investment funds: Performance comparison and the global financial crisis. Applied Economics, 47, 2541–2562.CrossRefGoogle Scholar
  5. Berk, J., Berk, J., Stanton, R., & Zechner, J. (2010). Human capital, bankruptcy, and capital structure. Journal of Finance, 65, 891–926.CrossRefGoogle Scholar
  6. Bird, R., Hall, A., Momente, F., & Reggiani, F. (2007). What corporate social responsibilities are valued by the market? Journal of Business Ethics, 76, 189–206.CrossRefGoogle Scholar
  7. Boatright, J. (1994). Fiduciary duties and the shareholder-management relation, or what is so special about shareholders? Business Ethics Quarterly, 4, 393–407.CrossRefGoogle Scholar
  8. Borghesi, R., Houston, J., & Naranjo, A. (2014). Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests. Journal of Corporate Finance, 26, 164–181.CrossRefGoogle Scholar
  9. Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29, 1325–1343.CrossRefGoogle Scholar
  10. Brammer, S., Millington, A., & Pavelin, S. (2009). Corporate reputation and women on the board. British Journal of Management, 20, 17–29.CrossRefGoogle Scholar
  11. Cai, Y., Jo, H., & Pan, C. (2011). Vice or virtue? The impact of corporate social responsibility on executive compensation. Journal of Business Ethics, 104, 159–173.CrossRefGoogle Scholar
  12. Carlin, B., & Gervais, S. (2009). Work ethic, employment contracts, and firm value. Journal of Finance, 64, 785–821.CrossRefGoogle Scholar
  13. Carroll, A. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34, 39–48.CrossRefGoogle Scholar
  14. Chima, F. (2002). Employee assistance and human resource collaboration for improving employment and disabilities status. Employee Assistance Quarterly, 17, 79–94.CrossRefGoogle Scholar
  15. Clark, M. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of Management Review, 20, 92–117.Google Scholar
  16. Cox, T. (2001). Creating the multicultural organization: A strategy for capturing the power of diversity. San Francisco: Jossey-Bass.Google Scholar
  17. Cronqvist, F., Heyman, F., Nisson, M., Svaleryd, H., & Vlachos, J. (2008). Do entrenched managers pay their workers more? Journal of Finance, 64, 309–339.CrossRefGoogle Scholar
  18. Daily, C., Certo, S., & Dalton, D. (1999). A decade of corporate women: Some progress in the boardroom, none in the executive suite. Strategic Management Journal, 20, 93–99.CrossRefGoogle Scholar
  19. Deleire, T. (2000). The wage and employment effects of the Americans with Disabilities Act. Journal of Human Resources, 35, 693–715.CrossRefGoogle Scholar
  20. Denis, D., & Sarin, A. (1999). Ownership and board structures in publicly traded corporations. Journal of Financial Economics, 52, 187–224.CrossRefGoogle Scholar
  21. Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. (2005). The eco-efficiency premium puzzle. Financial Analysts Journal, 61, 51–63.CrossRefGoogle Scholar
  22. DiGiuli, A., & Kostovetsky, L. (2014). Are red or blue companies more likely to go green? Politics and corporate social responsibility. Journal of Financial Economics, 111(1), 158–180.CrossRefGoogle Scholar
  23. Dunfee, T. (1999). Corporate governance in a market with morality. Law and Contemporary Problems, 62, 129–157.CrossRefGoogle Scholar
  24. Edmans, A. (2011). Does the stock market fully value intangible? Employee satisfaction and equity prices. Journal of Financial Economics, 101, 621–640.CrossRefGoogle Scholar
  25. Filbeck, G., Gorman, R., & Zhao, X. (2013). Are the best of the best better than the rest? The effect of multiple rankings on company value. Review of Quantitative Finance and Accounting, 41, 695–722.CrossRefGoogle Scholar
  26. Freeman, R. (1984). Strategic management: A stakeholder approach. Boston: Pitman.Google Scholar
  27. Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press.Google Scholar
  28. Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. The New York Times Magazine.Google Scholar
  29. Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking and Finance, 32, 2646–2654.CrossRefGoogle Scholar
  30. Garber, K. (2010). The evolution of an oil giant. US News and World Report, 147, 39–40.Google Scholar
  31. Gillan, S., & Starks, L. (2003). Corporate governance, corporate ownership, and the role of institutional ownership: A global perspective. Journal of Applied Finance, 13, 4–22.Google Scholar
  32. Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118, 107–155.CrossRefGoogle Scholar
  33. Griffin, J., & Koerber, C. (2006). Does industry matter when managing stakeholder relations? In Academy of management meeting proceedings (pp. G1–G6).Google Scholar
  34. Harjoto, M., & Jo, H. (2011). Corporate governance and CSR nexus. Journal of Business Ethics, 100, 45–67.CrossRefGoogle Scholar
  35. Hermalin, B., & Weisbach, M. (1988). The determinants of board composition. Rand Journal of Economics, 19, 589–606.CrossRefGoogle Scholar
  36. Hill, C., & Jones, T. (1992). Shareholder–agency theory. Journal of Management Studies, 29, 131–154.CrossRefGoogle Scholar
  37. Hillman, A., & Keim, G. (2001). Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22, 125–139.CrossRefGoogle Scholar
  38. Hong, H., & Kostovetsky, L. (2012). Red and blue investing: Values and finance. Journal of Financial Economics, 103, 1–19.CrossRefGoogle Scholar
  39. Hsieh, N. (2009). Corporate social responsibility and the priority of shareholders. Journal of Business Ethics, 88, 553–560.CrossRefGoogle Scholar
  40. Jensen, C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14, 8–21.CrossRefGoogle Scholar
  41. Jensen, M., & Meckling, W. (1976). Theory of firm: Managerial behavior, agency costs, and capital structure. Journal of Financial Economics, 3, 305–360.CrossRefGoogle Scholar
  42. Jiraporn, P., Davidson, W., DaDalt, P., & Ning, Y. (2009). Too busy to show up? An analysis of directors’ absences. Quarterly Review of Economics and Finance, 49, 1159–1171.CrossRefGoogle Scholar
  43. Jo, H., & Harjoto, M. (2011). Corporate governance and firm value: The impact of corporate social responsibility. Journal of Business Ethics, 103, 353–381.CrossRefGoogle Scholar
  44. Kempf, A., & Osthoff, P. (2007). The effect of socially responsible investing on portfolio performance. European Financial Management, 13, 908–922.CrossRefGoogle Scholar
  45. Kidalov, M., & Snider, K. (2011). A comparison of US and European public procurement policies for small and medium enterprises. Business and Politics, 13, 1469–1569.CrossRefGoogle Scholar
  46. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52, 1131–1150.CrossRefGoogle Scholar
  47. Lee, P., & James, E. (2007). SHE-E-OS: Gender effects and investor reactions to the announcements of top executive appointments. Strategic Management Journal, 28, 227–241.CrossRefGoogle Scholar
  48. Li, W., & Zhang, R. (2010). Corporate social responsibility, ownership structure, and political interference: Evidence from China. Journal of Business Ethics, 96, 631–645.CrossRefGoogle Scholar
  49. Logsdon, J., & Yuthas, K. (1997). Corporate social performance, stakeholder orientation, and organization moral development. Journal of Business Ethics, 16, 1213–1226.CrossRefGoogle Scholar
  50. Lorenzo, R. A. (2010). Understanding the ‘Transnational Social’: Soft affirmative action, human rights, and corporate social responsibility in Brazil. Journal of Global and Historical Anthropology, 56, 49–62.Google Scholar
  51. Luckerath-Rovers, M. (2013). Women on boards and firm performance. Journal of Management and Governance, 17(2), 491–509.CrossRefGoogle Scholar
  52. Luoma, P., & Goodstein, J. (1999). Stakeholders and corporate boards: Institutional influences on board composition and structure. Academy of Management Journal, 42, 553–563.CrossRefGoogle Scholar
  53. Marshall, J., & Heffes, E. M. (2006). Diversifying suppliers isn’t costly: Hackett. Financial Executive, 22(9), 12.Google Scholar
  54. McKinsey and Company. (2007). Women matter: Gender diversity, a corporate performance driver. Paris: McKinsey and Company.Google Scholar
  55. McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26, 117–127.Google Scholar
  56. Ning, Y., Davidson, W., & Wang, J. (2010). Does optimal corporate board size exist? An empirical analysis. Journal of Applied Finance, 20, 57–69.Google Scholar
  57. Norton, J., & Fox, R. (1997). The change equation: Capitalizing on diversity for effective organizational change. Washington, DC: American Psychological Association.CrossRefGoogle Scholar
  58. Ntim, C. (2015). Board diversity and organizational valuation: Unravelling the effects of ethnicity and gender. Journal of Management and Governance, 19(1), 167–195.CrossRefGoogle Scholar
  59. Pagano, M., & Volpin, P. (2005). Managers, workers, and corporate control. Journal of Finance, 60, 843–870.CrossRefGoogle Scholar
  60. Parrino, R., Sias, R., & Starks, L. (2003). Voting with their feet: Institutional ownership changes around forced CEO turnover. Journal of Financial Economics, 68, 3–46.CrossRefGoogle Scholar
  61. Pfeffer, J., & Salancik, G. (1978). The external control of organizations: A resource dependence perspective. New York: Harper and Row.Google Scholar
  62. Revelli, C., & Viviani, J. (2015). Financial performance of socially responsible investing (SRI): What have we learned? A meta-analysis. Business Ethics: A European Review, 24(2), 158–185.CrossRefGoogle Scholar
  63. Sandberg, J. (2011). Social responsible investment and fiduciary duty: Putting the freshfields report into perspective. Journal of Business Ethics, 101, 143–162.CrossRefGoogle Scholar
  64. SIF Foundation. (2012). Report on sustainable and responsible investing trends in the United States, US Social Investment Forum.Google Scholar
  65. Simpson, W., Carter, D., & D’Souza, F. (2010). What do we know about women on boards? Journal of Applied Finance, 2010, 27–39.Google Scholar
  66. Sparkes, R., & Cowton, C. (2004). The maturing of socially responsible investment: A review of the developing link with corporate social responsibility. Journal of Business Ethics, 52, 45–57.CrossRefGoogle Scholar
  67. Stewart, R., Volpone, S., Avery, D., & McKay, P. (2011). You support diversity, but are you ethical? Examining the interactive effects of diversity and ethical climate perceptions on turnover intention. Journal of Business Ethics, 100, 581–593.CrossRefGoogle Scholar
  68. Waddock, S., & Graves, S. (1997). The corporate social responsibility—Financial performance link. Strategic Management Journal, 18, 303–319.CrossRefGoogle Scholar
  69. Webb, E. (2004). An examination of socially responsible firms’ board structure. Journal of Management and Governance, 8, 255–277.CrossRefGoogle Scholar
  70. Wen, S. (2009). Institutional investor on socially responsible investment: Effects and expectations. Business Ethics, A European Review, 18, 308–333.CrossRefGoogle Scholar
  71. Werhane, P., & Freeman, R. (1999). Business ethics: The state of the art. International Journal of Management Review, 1, 1–16.CrossRefGoogle Scholar
  72. World Business Council for Sustainable Development. (2000). Making good business sense report.
  73. Zingales, L. (2000). In search of new foundations. Journal of Finance, 55, 1623–1653.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.School of Business AdministrationUniversity of Houston – VictoriaSugar LandUSA
  2. 2.School of CommunicationUniversity of HoustonHoustonUSA

Personalised recommendations