Corporate Social Responsibility and CEO Risk-Taking Incentives

40 Pages Posted: 9 Jan 2019

See all articles by Craig G. Dunbar

Craig G. Dunbar

Ivey Business School, Western University

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Yaqi Shi

University of Western Ontario - Richard Ivey School of Business

Date Written: April 4, 2017

Abstract

In this paper, we explore how firms incentivize their CEOs subsequent to undertaking risk-reducing corporate social responsibility (CSR) initiatives. Specifically, we focus on the effect of CSR standing on CEO’s future risk-taking financial incentives. We hypothesize that because firms possessing better social performance generate insurance-like moral capital that reduces firm risk, they will have more risk-taking capacity and should respond, therefore, by offering greater risk-motivating incentives to managers. Employing a large sample of US firms from 1992 to 2010, we find strong empirical evidence to support our hypothesis. Indeed, CSR standing is positively related to CEO pay-risk sensitivity, demonstrating that firms whose sustainable initiatives are viewed to be successful are more likely to offer their CEOs greater risk-motivating financial incentives. Further, this association is driven by CSR strengths rather than CSR concerns. Finally, we provide evidence that firm overall risk and idiosyncratic risk negatively moderate the association between CSR and CEO future risk-taking financial incentives.

Keywords: Corporate Social Responsibility, CEO Incentives, Vega, Risk Management

Suggested Citation

Dunbar, Craig G. and Li, Zhichuan Frank and Shi, Yaqi, Corporate Social Responsibility and CEO Risk-Taking Incentives (April 4, 2017). Available at SSRN: https://ssrn.com/abstract=2828267 or http://dx.doi.org/10.2139/ssrn.2828267

Craig G. Dunbar

Ivey Business School, Western University ( email )

1255 Western Road
Room 2309
London, Ontario N6G 0N1
Canada
519-661-3716 (Phone)
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Zhichuan Frank Li (Contact Author)

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

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

Yaqi Shi

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

1151 Richmond Street North
London, Ontario N6A 3K7
Canada
(519) 661 4097 (Phone)

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