44 Pages Posted: 1 Sep 2016 Last revised: 12 Dec 2016
Date Written: December 11, 2016
This study examines the antecedents and consequences of integrating corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance. Using a novel database of CSR contracting, we find that CSR contracting is more prevalent in emission-intensive industries and has become more prevalent over time. We further find that the adoption of CSR contracting leads to i) a reduction in short-termism; ii) an increase in firm value; iii) an increase in social and environmental performance; iv) a reduction in emissions; and v) an increase in green innovations. These findings are consistent with our theoretical arguments highlighting a new form of agency conflict — the misalignment between shareholders' and managers' preferences for stakeholder engagement — and suggest that CSR contracting can enhance corporate governance.
Keywords: corporate governance, corporate social responsibility, executive compensation, agency theory, short-termism
JEL Classification: D9, G3, J3, M1, M5, Q5
Suggested Citation: Suggested Citation
Flammer, Caroline and Hong, Bryan and Minor, Dylan, Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Antecedents and Outcomes (December 11, 2016). Available at SSRN: https://ssrn.com/abstract=2831694 or http://dx.doi.org/10.2139/ssrn.2831694