Co-opted directors and powerful CEOs: evidence from the CEO pay slice (CPS)

We explore the effect of co-opted directors on chief executive officer (CEO) power. Co-opted directors are those appointed after the incumbent CEO assumes office and are found by prior research to represent a weakened governance mechanism. Our evidence reveals that co-opted directors lead to less powerful CEOs, consistent with the substitution effect. Because co-opted directors impose less stringent oversight, the CEO is able to exercise a great deal of latitude in running the firm. Therefore, it is less necessary for the CEO to command so much power where more directors are co-opted, hence leading to less powerful CEOs. In other words, co-opted directors substitute for strong CEO power. Crucially, we find that board co-option exhibits much more explanatory power than does board independence, which has been the primary measure of board effectiveness in the literature.     

Deciphering the motives behind corporate social responsibility (CSR) using managerial ownership: evidence from heteroskedastic identification

Motivated by agency theory, we investigate the effect of managerial ownership on CSR engagement. Exploiting a novel identification strategy and using a large U.S. sample of over 14,000 observations across 18 years, we find that higher managerial ownership diminishes CSR engagement significantly. As managers own a larger share of equity, they bear greater costs of CSR, leading to a reduction in CSR engagement. Further analysis, however, shows that not all CSR activities are motivated by agency problems. In particular, the CSR activities related to human rights and products appear to promote shareholders’ wealth. The results of this study are important as they show that there can be different motives behind different CSR activities. We contribute to the literature by shedding light on the motives behind CSR investments using a novel identification strategy.     

The effect of firm maturity on corporate social responsibility (CSR): do older firms invest more in CSR?

Motivated by the literature on corporate life cycles, we explore the effect of firm maturity on corporate social responsibility (CSR). Our results based on over 26 000 observations across 21 years reveal that more mature firms invest significantly more in CSR. Furthermore, we find that the effect of firm maturity is not uniform across different categories of CSR. As firms get older, they become much more responsible in terms of diversity and environmental awareness, whereas the effect of firm ageing is much weaker in terms of human rights and product safety. Our study is the first to link corporate life cycles to CSR.