Corporate Social Responsibility (CSR) based compensation and share repurchases

Abstract

This study examines the effect of corporate social responsibility (CSR)-based compensation on share repurchases. Using a sample of S&P 500 firms from 2000 to 2018, we find that CEOs incentivised by CSR performance criteria (i.e., CSR contracting) adopt more cautious repurchase decisions to conserve cash to fulfill long-term obligations and stakeholder interests. This finding is robust to rigorous robustness checks, including alternative model specifications and difference-in-differences analyses. Our cross-sectional heterogeneity tests document that this effect is stronger for firms with more investment opportunities and high cash flow volatility. Finally, we show that the conserved cash from reduced repurchases is indeed subsequently allocated to CSR expenditures. Our study contributes to the debate on whether CSR contracting could motivate executives to pay more attention to stakeholders’ interests and produce implications on the impact of CSR provisions on CEO short-termism.