CEO Power, Corporate Social Responsibility, and Firm Value: A Test of Agency Theory

Li, F., Li, T., Minor, D., 2016, A Test of Agency Theory: CEO Power, Firm Value, and Corporate Social Responsibility, International Journal of Managerial Finance, 12 (5): 611-628.

31 Pages Posted: 1 Jun 2015 Last revised: 22 Feb 2017

See all articles by Zhichuan Frank Li

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Tao Li

University of Western Ontario - Department of Economics

Dylan Minor

Anderson School of Management (UCLA)

Date Written: May 31, 2015

Abstract

This study explores whether firms with powerful CEOs tend to invest (more) in corporate social responsibility (CSR) activities as the over-investment hypothesis based on classical agency theory predicts. In addition, this paper tests an alternative hypothesis that if CSR investment is indeed an agency cost like the over-investment hypothesis suggests, then those activities may destroy firm value. Using CEO pay slice (Bebchuck, Cremers, and Peyer, 2011), CEO tenure, and CEO duality to measure CEO power, we show that CEO power is negatively correlated with firm’s choice to engage in CSR and with the level of CSR activities in the firm. Furthermore, our results suggest that CSR activities are in fact value-enhancing in that as firms engage in more CSR activities their value increases.

Suggested Citation

Li, Zhichuan Frank and Li, Tao and Minor, Dylan, CEO Power, Corporate Social Responsibility, and Firm Value: A Test of Agency Theory (May 31, 2015). Li, F., Li, T., Minor, D., 2016, A Test of Agency Theory: CEO Power, Firm Value, and Corporate Social Responsibility, International Journal of Managerial Finance, 12 (5): 611-628.. Available at SSRN: https://ssrn.com/abstract=2612733 or http://dx.doi.org/10.2139/ssrn.2612733

Zhichuan Frank Li (Contact Author)

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

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

Tao Li

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada

Dylan Minor

Anderson School of Management (UCLA) ( email )

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

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