Corporate social responsibility engagement, corporate financial performance and CEO characteristics Online publication date: Wed, 18-Jan-2017
by Chao Bian; Christopher Gan; Zhaohua Li; Baiding Hu
International Journal of Business Governance and Ethics (IJBGE), Vol. 11, No. 3, 2016
Abstract: The current study examines the effect of corporate social responsibility (CSR) engagement on corporate financial performance (CFP). Prior studies document a positive CSR-CFP association without considering the moderating effects of chief executive officer (CEO) characteristics such as compensation incentives and tenure. Our results show evidence of a positive association between CSR and CFP only in the firms managed by short-tenured, high-cash paid CEOs and particularly during an industry's cooling-off period. The results imply that the incentives embedded in the current CEO pay are not effective and CEOs use CSR as a compensation management tool to increase their share-based pay. To encourage a CEO to implement CSR engagement, particularly during an industry's boom period, the board of directors should decrease common-share payments and increase the CEO's option payments. In addition, the proportion of cash compensation in the CEO's total compensation should not be reduced.
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