Is Managerial Entrenchment Always Bad and Corporate Social Responsibility Always Good? A Cross-National Examination of Their Combined Influence on Shareholder Value

40 Pages Posted: 6 Mar 2020

See all articles by Jordi Surroca

Jordi Surroca

Universidad Carlos III de Madrid - Department of Business Administration

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy

Kurt A. Desender

Universidad Carlos III de Madrid

Josep A. Tribo

Stevens Institute of Technology

Date Written: October 5, 2019

Abstract

Research summary: Building on the comparative capitalism’s notion of institutional complementarities, we examine whether firms’ simultaneous adoption of managerial entrenchment provisions (MEPs) and corporate social responsibility (CSR) activities reinforces or undercuts one another in influencing firm financial performance. We propose that the financial impact of such configurations is contingent on the country’s institutional setting. In Liberal Market Economies (LMEs), where firms face strong pressures to achieve short-term goals, the combination of MEPs and CSR creates shareholder value, particularly when firms engage in internally-oriented CSR projects. Conversely, in Coordinated Market Economies (CMEs), where institutions already curb short-term demands, the combined adoption of MEPs and CSR initiatives destroys shareholder value, particularly when this CSR is external. Overall, our study enhances understanding about the institutional complementarity between corporate governance and CSR.

Managerial summary: This study examines how two organizational practices, managerial entrenchment provisions (MEPs) and corporate social responsibility (CSR), combine between them to improve or reduce firms’ financial success. Our analysis demonstrates that institutional framework has a strong influence on their combined effect. When the institutional context supports solutions to coordination problems among economic agents through market-based arrangements, MEPs allow the implementation of strategies directed to promote long-term investments and relationships. In this case, MEPs when paired with CSR allow generating intangibles that contribute to create shareholder value. Contrarily, in frameworks with coordination mechanisms based on non-market arrangements, the joint adoption of MEPs and CSR destroys value by increasing the power of managers and blockholders to extract rents at the expense of firms’ minority shareholders.

Keywords: comparative capitalism, corporate governance, corporate social responsibility, managerial entrenchment, shareholder value

Suggested Citation

Surroca, Jordi and Aguilera, Ruth V. and Desender, Kurt A. and Tribo Gine, Josep Antonio, Is Managerial Entrenchment Always Bad and Corporate Social Responsibility Always Good? A Cross-National Examination of Their Combined Influence on Shareholder Value (October 5, 2019). Available at SSRN: https://ssrn.com/abstract=3532613 or http://dx.doi.org/10.2139/ssrn.3532613

Jordi Surroca (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

HOME PAGE: http://www.uc3m.es/uc3m/dpto/EMP/profesor/ijordi.htm

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy ( email )

Boston, MA 02115
United States

Kurt A. Desender

Universidad Carlos III de Madrid ( email )

Calle de Madrid, 123
Getafe, 28903
Spain

Josep Antonio Tribo Gine

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States
9292708869 (Phone)
07030 (Fax)

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