The Dark side of Independent Boards, the Case of Corporate Social Responsibility

Abstract

Independent boards have been documented to have a positive effect on corporate governance, however, I show that independent boards improve shareholder value at the cost of sacrificing corporate social responsibility (CSR). Specifically, I find that stakeholders such as employees and consumers' interest have been compromised as a result of board myopia. This result is even stronger among firms in industries with intense product market competition, and among firms with more analysts followed. My result also suggests that negative corporate social behavior may not be fully priced by investors.