Essays in CSR, customer concentration and corporate finance

Abstract

This thesis consists of three essays on corporate social responsibility (CSR), customer concentration and corporate finance. The first chapter examines how CEO inside debt holdings affect firms’ CSR activities. Using the US firm-level data over the 2006–2015 period, this study finds that firms with high CEO pensions and deferred compensation engage more in CSR. This positive relationship however is weakened for firms with greater CEO stock options, and strengthened for firms in controversial industries where CSR is crucial for risk mitigation. The results suggest that CEOs with higher inside debt holdings are less likely to take risks, thereby engaging in more CSR. The second chapter examines the effect of outside directors from major customers on suppliers' risk arising from customer concentration. Using data on US suppliers over the 2001–2016 period, this study finds that a positive relationship between customer concentration and suppliers' risk is weakened when customers' representatives sit on the suppliers' board as outside directors. This study further shows that the presence of customer-affiliated outside directors at suppliers is positively related to these firms' aggressive financial policies. The results suggest that customers' board membership at suppliers helps alleviate the customer concentration risk by strengthening the supplier–customer relationship and reducing their information asymmetry. Using a sample of US firms over the 1977-2016 period, the third chapter finds that a higher level of customer concentration is associated with lower market value of suppliers’ excess cash. This study conjectures that managerial agency problems are aggravated in dependent suppliers with a few large customers, resulting in investors’ lower assessment value to suppliers’ excess cash reserves. Furthermore, this study shows that managers in supplier firms with higher customer concentration receive greater compensation, engage in more value-destroying mergers, and experience less forced turnover.