Corporate Social Responsibility and Managerial Entrenchment

Journal of Economics and Management Strategy, 16 (3): 741-771

41 Pages Posted: 25 Jun 2007 Last revised: 28 Nov 2014

See all articles by Giovanni Cespa

Giovanni Cespa

City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Giacinta Cestone

Cass Business School, City University London; ECGI

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2007

Abstract

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased when explicit stakeholder protection is introduced so as to deprive incumbent CEOs of activists' support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others' agenda.

Keywords: Corporate Governance, Corporate Social Responsibility, Managerial Entrenchment,

JEL Classification: G34, G38

Suggested Citation

Cespa, Giovanni and Cestone, Giacinta, Corporate Social Responsibility and Managerial Entrenchment (April 1, 2007). Journal of Economics and Management Strategy, 16 (3): 741-771, Available at SSRN: https://ssrn.com/abstract=993685 or http://dx.doi.org/10.2139/ssrn.993685

Giovanni Cespa

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44(0)2040708704 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Giacinta Cestone (Contact Author)

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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