Horizon to Sustainability: CEO Incentive Duration and Corporate Social Responsibility
66 Pages Posted: 19 Jul 2022
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
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