Stakeholder orientation and managerial incentives: Evidence from a natural experiment |
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| Institution: | 1. College of Finance, Nanjing Agricultural University, Nanjing 210095, China;2. School of Advanced Agricultural Sciences, Peking University, Beijing 100871, China;3. Business School, Hohai University, Nanjing 211100, China;1. Department of Digital Economy, Shanghai University of Finance and Economics, No 777 Guoding Road, Shanghai 200433, China;2. School of Information Management & Engineering, Shanghai University of Finance and Economics, No 777 Guoding Road, Shanghai 200433, China;3. Faculty of Business information, Shanghai Business School, No 123 Fengpu Avenue, Shanghai 201400, China;1. School of Economics, Jiaxing University, Jiaxing 314001, China;2. China-ASEAN Institute of Financcial Cooperation, Guangxi University, Nanning, Guangxi, China;3. School of Economics, Guangxi University, Nanning, Guangxi, China;5. Shenzhen International Graduate School, Tsinghua University, Shenzhen, Guangdong, China;6. Guangxi University of Finance and Economics, Graduate School, Nanning, Guangxi, China;1. Tunis University, Tunis, Tunisia;2. PRESTIGE Lab, IHEC-University of Carthage, Carthage, Tunisia;3. Audencia Business School, Nantes, France;4. Léonard de Vinci Pôle Universitaire, Research Center, 92916 Paris, La Défense, France |
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| Abstract: | This paper examines the influence of stakeholder orientation on the design of managerial incentives. Our tests exploit the quasi-natural experiment provided by the staggered adoption of directors' duties laws (i.e., state-level laws that explicitly expand board members' duties to act in the best interests of all stakeholders). We find that the enactment of these laws results in a significant decrease in the sensitivity of CEO wealth to the stock price. This decrease is mostly driven by firms most exposed to pressures to maximize short-term stock price. Our results suggest that the decrease in the sensitivity of CEO compensation to the stock price is an important channel boards use to internalize stakeholder orientation. |
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