Assistant Professor of Finance
Kelly Shue, assistant professor of finance, explains her findings on corporate social responsibility (CSR) among executives and managers in the workplace, as well as her challenges quantifying social behaviors.
As an applied math major at Harvard University, Kelly Shue became interested in applied issues and the social sciences. She found that combining economics and finance was the best way to pursue her interests, and went on to receive her PhD in economics from Harvard. Shue currently teaches Corporation Finance here at Booth, while also researching matters of behavioral finance, including the extent to which financial markets underreact to “no news,” applied microeconomics, and altruistic behaviors in the workplace.
Shue’s research looks at how the compensation of executives can lead them to take on more risk, and how mental-accounting biases among executives explain the trend in growth and compensation. Additionally, she has done some work in behavioral economics, regarding how individuals are often influenced by their peers. Her experiment followed Harvard Business School graduates, who went on to become CEOs. Shue found that their behaviors changed over time to become more like those of their MBA peers.
A second project covers the idea that the passage of time, without the occurrence of other major events, can itself be informative. “If you go through a long period without terrorist attacks, that can tell you that the government is doing a good job preventing these terrorist attacks,” Shue says. “But because this information is rather quiet, people may not fully react to this type of information. So we study that in financial markets.”
One of Shue’s most significant research projects has to do with corporate social responsibility (CSR) and the premise that if a manager has very altruistic preferences, these may conflict with the preferences of shareholders. This research challenges the existing literature, she says, “which has largely argued that engaging in more CSR benefits everybody including shareholders.”
In her paper entitled, “Do Managers Do Good with Other Peoples’ Money?,” Shue writes that as managerial ownership increases, managers become more concerned about firm profits and they engage in less CSR. “And we also find that as governance improves, managers also reduce CSR. This suggests that managers value doing good for themselves, and sometimes instead of donating [one’s own] money, it is rather cheaper to donate the firm’s money.”
As profits improve, Shue found that engagement in CSR decreases. She caveats this assertion, highlighting that her research does not claim CSR to be detrimental, simply that it is not always in line with agendas for profit-maximization. “There can be many forms of CSR that actually do improve both firm profits and social welfare. All we are finding is that, on the margin, managers seem to be doing too much to the point that it is lowering shareholder value.”
CSR, as a topic within social good, covers something very broad from Shue’s perspective. “What we generally think of as direct corporate donations are just the very tip of the iceberg. CSR can refer to being nice to your labor, not going offshore, paying living wages, and providing healthcare insurance. CSR also encompasses green investment, community involvement, and being careful and concerned about the effects of your products on consumers above and beyond what is required of the law. ”
In particular, Shue argues that types of CSR which allow employees to donate in-kind services to local organizations can be good for both the community and for employee retention, because it is an action outside of the work agenda—not in conflict with firm profits—that may improve employee morale.
Shue’s main challenge, thus far, has been quantifying CSR in her research: “It is very easy to measure direct corporate donations. It is much harder to measure the full cost of the company engaging in building one type of production facility, rather than another, because one facility uses more clean energy, is more green, is more environmentally safe”—costs that are not easily quantifiable.
Over the next few years, Shue hopes to continue conducting research to both clarify her findings and analyze the effects of monetary and non-monetary incentives. “If you motivate managers with money, classical economics predicts that they should respond. But behavioral issues complicate how managers respond to various incentive schemes, including incentives other than standard compensation contracts.”