Corporate Social Responsibility and CEO Risk-Taking Incentives

21 Pages Posted: 9 Jan 2019 Last revised: 3 Sep 2020

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: September 2, 2019

Abstract

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

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

Craig G. Dunbar

Ivey Business School, Western University ( email )

1255 Western Road
Room 2309
London, Ontario N6G 0N1
Canada
519-661-3716 (Phone)
519-661-3963 (Fax)

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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