The Role of CEO’s Personal Incentives in Driving Corporate Social Responsibility

In this study, we explore the role of Chief Executive Officers’ (CEOs’) incentives, split between monetary (based on both bonus compensation and changes in the value of the CEO’s portfolio of stocks and options) and non-monetary (career concerns, incoming/departing CEOs, and power and entrenchment), in relation to corporate social responsibility (CSR). We base our analysis on a sample of 597 US firms over the period 2005–2009. We find that both monetary and non-monetary incentives have an effect on CSR decisions. Specifically, monetary incentives designed to align the CEO’s and shareholders’ interests have a negative effect on CSR and non-monetary incentives have a positive effect on CSR. The study has important implications for the design of executive remuneration (compensation) plans, as we show that there are many levers that can affect the CEO’s decisions with regard to CSR. Our evidence also confirms the prominent role of the CEO in relation to CSR decisions, while also recognizing the complexity of factors affecting CSR. Finally, we propose a research design that takes into account endogeneity issues arising when examining compensation variables.     

CEO career concerns and investment efficiency: Evidence from China

This paper investigates the impact of CEO career concerns on a firm's investment efficiency for publicly listed Chinese companies from 2002 to 2009. We use CEO age and appointment of new CEO as proxies for CEO career concerns. For the whole sample, we demonstrate that younger CEOs and newly appointed CEOs are prone to invest less and more efficiently. We divide our sample into state-owned enterprises and non-state-owned enterprises, depending on their ultimate ownership. The age effect seems stronger in state-owned enterprises and the new appointment effect seems stronger in non-state-owned enterprises. Our results indicate that CEOs have long-term career concerns that can improve a firm's investment efficiency even in a transitional economy such as China.     

Media Depictions of CEO Ethics and Stakeholder Support of CSR Initiatives: The Mediating Roles of CSR Motive Attributions and Cynicism

Corporate social responsibility (CSR) functions as a positive signal to stakeholders that a firm is a responsible corporate citizen. However, CSR is increasingly becoming an ambiguous signal of organizational goodwill because many companies engage in CSR purely out of self-interest, rather than genuine altruism. In this paper, we integrate attribution theory with signaling theory to explore how stakeholders react when they receive additional signals that contradict the company’s intended positive CSR signal. Specifically, we argue that morally questionable CEO ethics in the media negatively influences stakeholders’ CSR motive attributions, which in turn results in increased cynicism that ultimately impacts CSR support intentions and behaviors. We find support for our hypotheses in a quasi-experimental study of stakeholder media exposure to different types of CEOs (morally questionable, ethical, and ethics-unknown). Our findings demonstrate that stakeholders consider CEO ethics an important signal of CSR motives, and will shun the CSR initiatives of morally questionable CEOs.     

Insurance of Techno-Organizational Ventures and Procedural Ethics: Lessons from the <Emphasis Type="Italic">Deepwater Horizon</Emphasis> Explosion

Some argue that managers over-invest in corporate social responsibility (CSR) activities to build their personal reputations as good global citizens. Others claim that CEOs strategically choose CSR activities to reduce the probability of CEO turnover in a future period through indirect support from activists. Still others assert that firms use CSR activities to signal their product quality. We find that firms use governance mechanisms, along with CSR engagement, to reduce conflicts of interest between managers and non-investing stakeholders. Employing a large and extensive sample of firms within Russell 2000, S&500 and Domini 400 indices during the 1993–2004 period, we find that consistent with the conflict-resolution hypothesis, the CSR choice is positively associated with governance characteristics, including board independence, institutional ownership, and analyst following. In addition, after correcting for endogeneity of CSR engagement, our results show that CSR engagement positively influences operating performance and firm value, supporting the conflict-resolution hypothesis as opposed to the over-investment and strategic-choice arguments. We find only a weak support of the product-signaling hypothesis as a major motive of CSR engagement.     

Doing Good Business by Hiring Directors with Foreign Experience

Using a manually collected dataset on the overseas experiences of directors of Chinese listed firms, we examine the effects of returnee directors on firms’ corporate social responsibility (CSR) engagement. Our results show that returnee directors significantly improve their firms’ CSR engagement. The positive relationship between the percentage of returnee directors and CSR engagement is more significant when a firm is in a competitive industry, when a firm has no government ownership, when a firm’s CEO is not politically connected, and when a firm’s CEO is older. Furthermore, we find that only long-term foreign professional or academic experience matters, whereas short-term visiting experience does not. Finally, our results are robust after controlling for endogeneity. Therefore, this paper offers clear policy implications by suggesting that hiring more returnees as corporate directors is an efficient way to enhance firms’ CSR, which may be of particular interest to regulators in emerging markets.     

Corporate Governance and Corporate Social Responsibility Disclosures: Evidence from an Emerging Economy

We examine the relationship between corporate governance and the extent of corporate social responsibility (CSR) disclosures in the annual reports of Bangladeshi companies. A legitimacy theory framework is adopted to understand the extent to which corporate governance characteristics, such as managerial ownership, public ownership, foreign ownership, board independence, CEO duality and presence of audit committee influence organisational response to various stakeholder groups. Our results suggest that although CSR disclosures generally have a negative association with managerial ownership, such relationship becomes significant and positive for export-oriented industries. We also find public ownership, foreign ownership, board independence and presence of audit committee to have positive significant impacts on CSR disclosures. However, we fail to find any significant impact of CEO duality. Thus, our results suggest that pressures exerted by external stakeholder groups and corporate governance mechanisms involving independent outsiders may allay some concerns relating to family influence on CSR disclosure practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organisational legitimacy through CSR disclosures. The findings of our study should be of interest to regulators and policy makers in countries which share similar corporate ownership and regulatory structures.     

CEO personality and language use in CSR reporting

We explore the relationship between chief executive officer (CEO) personality traits and corporate social responsibility (CSR) reporting. Upper echelons theory indicates that the values, experiences, and personalities of top organizational managers influence their organization's strategic decisions and effectiveness. We utilize IBM Watson Personality Insights software to infer CEOs’ personality traits based on their responses to questions raised by analysts during year-end conference calls; we obtain CEOs’ Big Five personality traits—openness, conscientiousness, extraversion, agreeableness, and neuroticism—from which we compute a measure of their risk tolerance. Using a longitudinal dataset of Standard and Poor's 500 firms for 2008–2015, we document that high CEO risk tolerance is related to lower CSR report readability and smaller CSR disclosure volume. This finding indicates that executives who are comfortable with greater risk are more willing to supply stakeholders with reports that are shorter and require greater effort to understand. Exploration of the association between CEO Big Five personality traits and CSR report readability and disclosure volume allows key stakeholders to better comprehend CSR disclosures and connotations thereof. Overall, our results contribute to the debate on how CEO personality traits affect organizations’ CSR disclosure reporting strategies, and support upper echelons theory in the CSR setting.     

CEO power and its effect on performance and governance: Evidence from Chinese banks

This study investigates whether CEO power matters in Chinese banks. We find that the effects of four power dimensions on banks' performance and board structure vary in their own unique ways. The CEOs with structural power are negatively related to performance but positively related to gender-diversified boards. Moreover, CEOs with ownership power enhance performance but are negatively associated with professionalism and diversification in the boards. Banks that have CEOs with expert power perform well and have gender-diversified boards. Meanwhile, CEOs with prestige power are likely to appoint politically connected directors to the board.     

Founder CEOs,personal incentives,and corporate social irresponsibility

This study integrates organizational identity (OI) theory and upper echelons theory to explore the impact of CEOs’ founder status on corporate social irresponsibility (CSI). We theorize that compared with other CEOs, a founder CEO is more likely to generate a high degree of OI with the firm, which will drive the founder CEO to actively avoid CSI that may damage the positive image and long-term development of the firm. Furthermore, we argue that CEO duality and CEO ownership will strengthen the aforementioned relationship by increasing the possibility of founder CEOs generating a high degree of OI. Conversely, CEO underpayment will weaken the relationship between founder status and CSI by decreasing the possibility of founder CEOs generating a high degree of OI. We obtained empirical evidence in support of our arguments from a large Chinese private listed company dataset. Overall, this study’s theory and evidence clearly show that founder status and personal incentives can jointly shape CEOs’ CSI decisions, thereby providing useful insights for corporate shareholders and government agencies to better prevent and govern firms’ CSI.     

CEO regulatory focus and myopic marketing management

This study details the mechanisms on how CEO regulatory focus affects the salience of the gains versus losses involved in myopic marketing decision-making, and how such CEO psychological attributes interact with internal equity-based compensation, external pressure from equity analysts, and environmental turbulence to affect firms’ myopic marketing management propensities. We find that when faced with short-term earnings pressure to meet earnings expectations and when time is no longer a resource, predominantly promotion-focused are more likely to engage in myopic marketing management to benefit from the temporary stock price increase, which comes from meeting or beating earnings expectations. Conversely, predominantly prevention-focused CEOs are less prone to such short-termist actions which results in long-term value loss. For the moderating variables, we find that: (1) equity-based compensation tends to attenuate myopic marketing tendencies of promotion-focused CEOs but have no impact on prevention-focused CEOs, (2) whether equity analysts improve monitoring or aggravate short-term earnings pressure depends on the CEO’s regulatory focus, and (3) environmental turbulence does not increase the myopic marketing management tendencies of predominantly promotion-focused CEOs but rather intensifies the relunctance of prevention-focused CEOs to take short-termist actions. We further find that myopic marketing management mediates the impact of CEO regulatory focus on future firm performance. These findings have important implications for firms and boards when selecting new CEOs and structuring the compensation of existing CEOs. Firms need to simultaneously consider the fit between the CEOs’ regulatory focus, firms’ needs, the business environment, as well as CEO compensation structure.     

Founder management and the market for corporate control for IPO firms: The moderating effect of the power structure of the firm

This study draws on agency and stewardship theory to evaluate the relationship between alternative governance regimes (founder versus non-founder CEO) adopted at the time of going public on post-IPO economic outcomes in the market for corporate control. We find that the presence of founder CEOs reduces the likelihood of post-IPO change of control but enhances target IPO firm wealth by increasing acquisition premiums. Additionally, we examine whether measures of CEO power over the board moderate the relationship between founder management and target IPO firm wealth. Our results suggest that CEO duality is the most effective instrument of CEO power available to founder CEOs to positively influence target firm wealth. Further, we find that while founder CEOs utilize power derived from CEO duality to increase acquisition premiums, non-founder CEOs use board leadership power to expropriate shareholder wealth.     

The Effects of CEO Founder Status and Stock Ownership on Entrepreneurial Orientation in Small Firms

This paper studies how governance drives entrepreneurial orientation (EO) in small firms. We argue that founder status and ownership create powerful personal incentives for small firm CEOs to engage in behaviors that influence EO. Integrating stewardship theory and the principal‐principal branch of agency theory, we test our hypotheses on a sample of 339 Swedish firms, and find that CEO founder status is significantly and positively associated with EO, while CEO stock ownership significantly but negatively predicts EO. We additionally test two boundary conditions that show that the founder‐CEO's prior managerial experience in start‐up firms positively moderates the founder‐EO relationship, while contrary to expectations, CEO ownership diversification has no effect on the negative association between ownership and EO. Thus, our study adopts a corporate governance perspective to explain how variations in EO across small firms are driven by the goals and motivations of its leader. Our research also shows that in small, private firms the balance of power is tipped in favor of the CEO rather than the board of directors. Finally, we underline the importance of adopting alternative theoretical lens like stewardship and principal‐principal agency, given that traditional principal‐agent problems are largely mitigated in the small firm context.     

Not Good,Not Bad: The Effect of Family Control on Environmental Performance Disclosure by Business Group Firms

In this study, we examine the influence of senior leadership on firms’ corporate social responsibility (CSR). We integrate upper echelons research that has investigated either the influence of the CEO or the top management team (TMT) on CSR. We contend that functional experience complementarity between CEOs and TMTs in formulating and implementing CSR strategy may underlie differentiated strategies in CSR. We find that when CEOs who have predominant experience in output functions are complemented by TMTs with a lower proportion of members who have experience in output functions, there is a pronounced effect on the community, product, and diversity dimensions of CSR. In turn, when output-oriented CEOs are complemented by output-oriented TMTs, we observe an effect on the employee relations dimension of CSR. Interestingly, we find no influence of CEO-TMT complementarity on the environment dimension of CSR. In general, our empirical results support the relevance of the interaction between CEOs and their TMTs in defining their firms’ CSR profile.     

Just about money? CEO satisfaction and firm performance in small family firms

This paper examines how family ownership and family ties influence the relative importance of economic and non-economic goals on the CEO’s satisfaction with the firm. Using a sample of small high-tech family and non-family firms, we show that the influence of past firm economic performance on CEO satisfaction is weaker in the case of CEOs leading a family firm. Our results also suggest that this influence becomes weaker as the family firm transitions into subsequent generations. However, contrary to our expectations, we were not able to find a differential effect of firm performance on CEO satisfaction between CEOs who belong to the controlling family and those who do not.     

Do the Right Thing: The Imprinting of Deonance at the Upper Echelons

This study expands the application of deonance theory into organizations’ upper echelons by examining how CEOs imprinted with a sense of duty can influence managerial decision-making. We hypothesize an imprint of bounded autonomy, an ought-force that constrains their decision-making and understanding of behavioral freedom, influences duty-bound CEOs to self-report errors in past financial reporting. We test deonance theory propositions of instrumentality for behavioral expansion, namely loss avoidance and gain attainment, related to institutional ownership concentration and CEO equity ownership. We use CEOs that are graduates of U.S. service academies as a proxy for duty-bound executives and find firms they lead are more likely to issue a financial restatement to correct a previous reporting error. This finding is robust to alternate explanations such as being error-prone, earnings management, auditor oversight, and risk behaviors. We also find evidence that deonance may be subject to behavioral expansion. The likelihood of issuing a restatement decreases as institutional ownership concentration and CEO equity ownership increases. This study shows imprinted deonance within the C-suite influences important organizational outcomes.

     

Corporate Social Responsibility and Its Impact on Firms’ Investment Policy, Organizational Structure, and Performance

This study examines the determinants of corporate social responsibility (CSR) and its implications on firms’ investment policy, organizational strategy, and performance. First, we find that firms with better performance, higher R&D intensity, better financial health, and firms in new economy industries are more likely to engage in CSR activities, while riskier firms are less likely to do so. We also find U-shaped relation between firm size and CSR, indicating that either very small or very large firms exhibit high levels of CSR strengths and concerns. Next, we find that firms’ CSR strengths relate favorably with their investments, organizational strategy, and performance, whereas CSR concerns and firm attributes are by and large negatively related. Using a 2SLS procedure, we verify that the CSR–performance relation is robust to corrections for endogeneity through reverse causation and/or biases introduced by time varying omitted variables. Finally, we find that the CSR–firm attributes relation is strengthened when the CEO’s incentives are below the sample median, suggesting that CSR participation is especially important when monetary incentives are lower than benchmark levels.     

Internationalization and firm performance of SMEs: The moderating effects of CEO attributes

This paper examines the impact of CEO attributes on the internationalization–performance relationships of SMEs. Based on the upper echelons and information processing theories, we argue that CEOs play an important role in the internationalization of SMEs. Furthermore, some of the attributes of CEOs who have a greater information processing capability have positive moderating effects on the internationalization–performance relationship. Using panel data of 187 Taiwanese SMEs that expanded abroad, we find that age, educational level, international experience, and duality of the CEO have moderating effects on the relationship between internationalization and firm performance.     

Power and responsibility: How different sources of CEO power affect firms' corporate social responsibility practices

Does greater CEO power come with more responsibility? Previous scholarly work in this field entails divergent results on this question. Based on the upper echelons theory and CEO power literature, this study aimed to explore the mechanisms underlying how different sources of CEO power, including structural, ownership, expert, and prestige power, affect firms’ corporate social responsibility (CSR) practices and whether such relationships are moderated by firm visibility. Using a panel dataset comprising 6604 yearly observations of Chinese publicly traded firms from 2009 to 2019, we found that structural power is negatively related to CSR practices and that expert power is positively related to CSR practices, whereas ownership power and prestige power have no direct relationship with CSR practices. Our results show that firm visibility weakens the negative relationship between structural power and CSR practices and strengthens the relationship between expert power and CSR practices, respectively. Overall, this study reconciles the mixed results of previous studies on the impact of CEO power on CSR and integrates the effect of firm visibility as a contextual factor. This article concludes with practical recommendations on how to manage CSR engagement.     

Executive Compensation and Corporate Fraud in China

This study investigates the relation between CEO compensation and corporate fraud in China. We document a significantly negative correlation between CEO compensation and corporate fraud using data on publicly traded firms between 2005 and 2010. Our findings are consistent with the hypothesis that firms penalize CEOs for fraud by lowering their pay. We also find that CEO compensation is lower in firms that commit more severe frauds. Panel data fixed effects and propensity score methods are used to demonstrate these effects. Our results also indicate that corporate governance mechanisms influence the magnitude of punishment. We find that CEOs of privately controlled firms, firms that split the posts of CEO and chairman, and CEOs of firms located in developed regions suffer larger compensation penalties for committing financial fraud. Finally, we show that CEOs at firms that commit fraud are more likely to be replaced compared to those at non-fraud firms.     

Earnings Quality in Private SMEs: Do CEO Demographics Matter?

This study investigates the impact of CEO demographics on earnings quality for private SMEs. Using a 2012 sample of 30,476 French firms, we first find strong empirical support for a gender effect: female‐run firms engage in less earnings management than do male‐run firms. This result is consistent with female CEOs being more risk averse than their male counterparts are when making financial decisions. Second, CEO age is negatively correlated with the magnitude of discretionary accruals, and the relationship between gender and earnings quality is stronger for older CEOs. Overall, our findings suggest that CEO demographics affect the quality of accounting information.