We test the signaling view of corporate social responsibility (CSR) engagement using two complementary quasi-natural experiments that impose exogenous negative pressure on stock prices. Firms under such adverse price pressure increase CSR activities compared to otherwise similar firms. This effect concentrates among firms with stronger signaling incentives, namely, those facing greater information asymmetry, more product market competition, higher shareholder litigation risk, and higher stock price crash risk. Firms under the exogenous negative price pressure mainly improve CSR strengths, including costly environmental investments. We also find that CSR engagement attracts socially responsible investors and lowers the cost of capital for signaling firms.

Consistent with theories on the equilibrium matching between capital structure and employee job risk aversion, we find a robust, positive association between a firm’s leverage and its employees’ family labor income diversification. Higher-Leverage firms also recruit new employees with greater income diversification. For identification, we exploit two policy shocks that exogenously change employee income diversification and firm leverage, respectively. Individual employee-level tests further reveal that workers with differential risk attitudes adjust their job choices and household labor income portfolios in response to significant shifts in their employers’ leverage. Finally, human bankruptcy costs contribute to the general level of corporate risk-taking.

Using unique U.S. Census data sets, we analyze how entrepreneurial firms’ product market characteristics affect their choice between going public, being acquired, or remaining private. Size, total factor productivity (TFP), sales growth, capital expenditure, market share, access to private funding, and human capital intensiveness significantly increase a private firm’s likelihood of an initial public offering (IPO) relative to an acquisition. Firms in industries with less information asymmetry and higher stock liquidity are more likely to choose an IPO over an acquisition. While TFP peaks around either form of exit, the rate of increase in TFP prior to acquisitions and the subsequent decrease is smaller than that around IPOs.