The Evolution of Public Companies' Corporate Social Responsibility

Abstract

We examine the evolutionary path of companies' corporate social responsibility (CSR) since their debuts as public companies. We find that firms' average CSR score is rising over the time they are listed in the public capital market. Neither the CSR score change over the age of the firm nor the general trend of CSR over time can explain this pattern. The phenomenon is more likely driven by the number of years the firms have been in the public market. We further find supporting evidence that this pattern of rising CSR since the public listing is more pronounced when the firm is more profitable, holds more cash, has a higher payout ratio, or has more free cash flows. Overall, our findings support the hypothesis that improving CSR performance may not be the priority of most firms new to the public market, but the "public camera effect" is an effective mechanism to assure the growth of CSR assuming the firms remain in the public market.