2020/04/22 by Mark R. DesJardine, Emilio Marti, Rodolphe Durand · 215 citations
Business, Management and Accounting · #Accounting #Business #Corporate Finance and Governance #Corporate Identity and Reputation #Corporate Social Responsibility Reporting #Corporate governance #Corporate social responsibility #Economics #Finance #Hedge #Hedge fund #Microeconomics #Public relations #Shareholder #Shareholder value #Unintended consequences
paper · open access · doi:10.5465/amj.2019.0238
published in Academy of Management Journal 64(3), 851-872 (Academy of Management)
openalex publication_date 2020/04/22 · openalex created_date 2020/05/01 · openalex updated_date 2026/07/29
We develop and test a theory of how unintended audiences create reaction costs for firms that use corporate social responsibility (CSR) as a signal. We introduce and define reaction costs as costs that signal senders incur when unintended audiences react negatively to a true signal that was intended for another audience. We argue that activist hedge funds—an unintended audience—treat CSR as a signal that firms have wasteful intentions and capabilities, which prevent firms from maximizing shareholder value in the short term. On that basis, we hypothesize that activist hedge funds are more likely to target firms with higher levels of CSR, thus imposing reaction costs on these firms. We further argue that this relationship is weaker when firms operate in industries with high levels of CSR, and stronger when firms’ financial communication is vague. Using data on activist hedge fund campaigns in the U.S. between 2000 and 2016, we find supporting results. Our study shows that CSR signals may be costlier than previously assumed and contributes to research on CSR, signaling, and corporate governance.