Corporate Social Responsibility and CEO Risk-Taking Incentives

We examine how firms adjust CEO risk-taking incentives in response to risk environments as-sociated with their corporate social responsibility (CSR) standing. We find strong evidence that as a firm's CSR status improves (declines), increasing (decreasing) its risk-taking capacity, the firm responds by adjusting compensation contracts to increase (decrease) CEO risk-taking incentives (Vega). One channel of the adjustment is through stock option grants. Further analyses indicate that the positive CSR-Vega association is stronger in firms with better corporate governance and in industries where riskiness is more important. Our evidence indicates that firms are not passive in response to changes in CSR status and firm risk.

Keywords: Corporate Social Responsibility, Executive Compensation, Managerial Incentives, Vega, Social Capital, Risk Management

JEL Classification: G32, G34, M14

Suggested Citation: Suggested Citation

Dunbar, Craig G. and Li, Zhichuan Frank and Shi, Yaqi, Corporate Social Responsibility and CEO Risk-Taking Incentives (September 2, 2019). Journal of Corporate Finance, Vol. 64, No. 101714, 2020, Available at SSRN: https://ssrn.com/abstract=2828267 or http://dx.doi.org/10.2139/ssrn.2828267