Is Corporate Social Responsibility an Agency Problem? Evidence from CEO Turnovers

33 Pages Posted: 21 Dec 2014

See all articles by John Manuel Barrios

John Manuel Barrios

University of Chicago - Booth School of Business

Marco Fasan

Ca Foscari University of Venice - Department of Management

Dhananjay Nanda

University of Miami - Department of Accounting

Date Written: December 1, 2014

Abstract

We empirically examine two competing claims: first, if a firm’s Corporate Social Responsibility (CSR) activity is driven by its CEO’s private rent extraction (i.e. an agency problem), firms with higher CSR ratings are poorly governed and their managers are less likely to be dismissed for poor financial performance. In contrast, if CSR reflects owners’ preferences, CEOs of firms with higher CSR ratings are more likely to be removed in light of poor financial performance. We find that CEO turnover-financial performance sensitivity increases in firm CSR scores during the last years of both the outgoing CEO as well as his predecessor. Further, firm CSR ratings do not change following CEO turnover suggesting that CSR ratings are a firm characteristic. Our findings are consistent with the view that CSR is driven by shareholder preferences.

Keywords: Corporate Social Responsibility, CEO turnover, Corporate Governance.

JEL Classification: G34, L21, M51

Suggested Citation

Barrios, John Manuel and Fasan, Marco and Nanda, Dhananjay, Is Corporate Social Responsibility an Agency Problem? Evidence from CEO Turnovers (December 1, 2014). Available at SSRN: https://ssrn.com/abstract=2540753 or http://dx.doi.org/10.2139/ssrn.2540753

John Manuel Barrios

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Marco Fasan

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Dhananjay Nanda (Contact Author)

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States

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