Corporate Sustainability Investment and Overinvestment of Free Cash Flow

This study examines whether corporate sustainability leaders behave differently in internal resource allocation. Specifically, I investigate whether sustainability leaders constrain overinvestment of free cash flow, thereby delivering more efficient use of internally generated resources, as compared to firms that do not meet the same corporate social and environmental criteria. Empirical evidence documented in this study test alternative hypotheses regarding why companies expend effort and resources to address social and environmental concerns. If sustainability investment is due to the higher ethical standards adopted by the management, the higher standards will also extend to other aspects of corporate behavior, such as a more responsible use of free cash flow. On the other hand, if corporate sustainability investment is driven by management’s pursuit of self-interest, the opportunistic behavior will extend to other discretionary decision making, such as overinvestment of free cash flow. Presentation by Qi Sun at Global Conference on Business and Finance, Honolulu, Hawaii, January 6-9, 2014