Choosing to Be 'Good': How Managers Determine Their Impact on Financial and Social Performance

Abstract

We investigate the relationship between a manager’s influence on firm financial and social performance. To examine the mechanism governing the relationship between a manager’s investment decisions along both dimensions of performance, we use a formal agency theory model to develop testable implications. In our empirical results, we find that a manager’s influence on firm CSR activities is negatively related to their influence on financial performance. Also, as suggested by the implications of the model, we find that managers who operate in industries with more volatile financial performance and receive a lower share of compensation from incentive-based pay are more likely to have a positive influence on firm social performance.