Horizon to Sustainability: Ceo Incentive Duration and Corporate Social Responsibility

Abstract

This paper finds that CEO incentive horizons, as measured by CEOs’ pay duration, are positively associated with their firms’ performance in corporate social responsibility (CSR), particularly for firms facing higher risks of reputation loss or requiring greater stakeholder support. Further tests suggest that longer pay duration incentivizes CEOs to invest in CSR activities that benefit both stakeholders and shareholders in the future. Moreover, we employ various identification strategies to show that endogenous factors are less likely to drive our conclusions or inferences. We conduct a series of tests to confirm the robustness of our findings. Overall, our evidence indicates the benefits of longer incentive horizons for helping firms align their stakeholders’ interests with those of stakeholders and broader goals of society and environment.

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