Horizon to Sustainability: CEO Incentive Duration and Corporate Social Responsibility

66 Pages Posted: 19 Jul 2022

See all articles by Xudong Fu

Xudong Fu

University of Louisville

Rui Shen

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics; Shenzhen Finance Institute

Tian Tang

University of Louisville

Xinyan Yan

University of Dayton

Abstract

This paper finds that CEO incentive horizons, proxied by their executives’ pay duration, are positively associated with their firms’ engagement in corporate social responsibility (CSR), especially when those firms face high risk of reputation loss, need stakeholder support, or maintain effective corporate governance practices. CSR, when practiced by CEOs with long-horizon incentives, benefits both stakeholders and shareholders in the long run. Further tests suggest that endogenous factors are unlikely to drive our conclusions or inferences. Taken together, our evidence suggests that the instrumental perspective on CSR prevails and long incentive horizons help firms align their stakeholders’ interests with shareholder value.

Keywords: Managerial Myopia, CEO Pay Duration, Corporate Social Responsibility (CSR), Stakeholders

Suggested Citation

Fu, Xudong and Shen, Rui and Tang, Tian and Yan, Xinyan, Horizon to Sustainability: CEO Incentive Duration and Corporate Social Responsibility. Available at SSRN: https://ssrn.com/abstract=4167281

Xudong Fu

University of Louisville ( email )

Louisville, KY 40292
United States

Rui Shen (Contact Author)

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

Shenzhen Finance Institute ( email )

Tian Tang

University of Louisville ( email )

United States
502-852-4819 (Phone)

Xinyan Yan

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

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