Corporate Governance and Executive Compensation for Corporate Social Responsibility

36 Pages Posted: 24 Jan 2015 Last revised: 13 Feb 2017

See all articles by Bryan Hong

Bryan Hong

New York University (NYU) - Leonard N. Stern School of Business

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Dylan Minor

Anderson School of Management (UCLA)

Date Written: November 24, 2015

Abstract

We link the corporate governance literature in financial economics to the agency cost perspective of Corporate Social Responsibility (CSR) to derive theoretical predictions about the relationship between corporate governance and the existence of executive compensation incentives for CSR. We test our predictions using novel executive compensation contract data, and find that firms with more shareholder-friendly corporate governance are more likely to provide compensation to executives linked to firm social performance outcomes. Also, providing executives with direct incentives for CSR is an effective tool to increase firm social performance. The findings provide evidence identifying corporate governance as a determinant of managerial incentives for social performance, and suggest that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost.

Keywords: Corporate governance, Corporate Social Responsibility, Incentives for CSR, Executive compensation, Agency problem, Board independence, Institutional holdings, Managerial power

Suggested Citation

Hong, Bryan and Li, Zhichuan Frank and Minor, Dylan, Corporate Governance and Executive Compensation for Corporate Social Responsibility (November 24, 2015). Journal of Business Ethics, Forthcoming; Harvard Business School Working Paper No. 16-014. Available at SSRN: https://ssrn.com/abstract=2553963 or http://dx.doi.org/10.2139/ssrn.2553963

Bryan Hong

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY 10012
United States

Zhichuan Frank Li (Contact Author)

University of Western Ontario - Ivey School of Business ( email )

1151 Richmond Street North
London Ontario, Ontario N6A 3K7
Canada

Dylan Minor

Anderson School of Management (UCLA) ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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