Invisible governance: Cognitive ability and corporate social responsibility

Abstract

Our research examines the effect of cognitive ability on corporate social responsibility (CSR) based on the data of listed companies in China's A-share market. As an informal system, cognitive ability plays an important governance role in CSR performance. The channel analysis shows that cognitive ability stimulates CSR through three mechanisms: improving external supervision, strengthening internal control, and promoting external supervision to boost internal control. In addition, the effect of cognitive ability on CSR performance is heterogeneous according to the different ownership of enterprises. Furthermore, we find that cognitive ability has an important supervisory effect on the CSR of state-owned enterprises (SOEs) with greater financing constraints. Mitigating the financing constraints and the operating risks of non-SOEs can better improve governance effect of cognitive ability on them, reducing their practices of CSR motivated by rent-seeking.