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Managerial Incentives and Firm Risk Taking: The Mediating Role of Corporate Social Responsibility

Author

Listed:
  • Desheng Yin

    (School of Economics and Management, East China Normal University, Shanghai 20062, China)

  • Michael Wang

    (Department of Statistics, The Ohio State University, Columbus, OH 43201, USA)

  • Yufan Sun

    (Stuart School of Business, Illinois Institute of Technology, Chicago, IL 60016, USA)

  • Haizhi Wang

    (Stuart School of Business, Illinois Institute of Technology, Chicago, IL 60016, USA)

  • Xinting Zhen

    (Department of Business Administration and Accounting, Saint Michael’s College, Burlington, VT 05446, USA)

Abstract

In this study, we focus on managerial incentives provided by debt-like compensation and further investigate whether and to what extent such managerial incentives may affect CEOs’ decisions on risk management. Building on cumulative prospect theory and instrumental stakeholder theory, we propose that CEOs tend to have risk-reduction incentives if they are paid with debt in their own firms, and that firm engagement in corporate social responsibility (CSR) activities can mediate the relationship between debt-like compensation and firm risk taking. In addition, we posit that the mediated relationship between CEO debt-like compensation and firm risk taking is contingent, and we propose environmental dynamism and munificence as two such contingencies that moderate the mediated process. Using a large longitudinal dataset of nonfinancial U.S. firms, we document strong supportive evidence for these hypotheses.

Suggested Citation

  • Desheng Yin & Michael Wang & Yufan Sun & Haizhi Wang & Xinting Zhen, 2025. "Managerial Incentives and Firm Risk Taking: The Mediating Role of Corporate Social Responsibility," Risks, MDPI, vol. 13(3), pages 1-21, February.
    • Handle: RePEc:gam:jrisks:v:13:y:2025:i:3:p:42-:d:1599236
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    References listed on IDEAS

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    1. Roy L. Simerly & Mingfang Li, 2000. "Environmental dynamism, capital structure and performance: a theoretical integration and an empirical test," Strategic Management Journal, Wiley Blackwell, vol. 21(1), pages 31-49, January.
    2. Nicholas Reinholtz & Philip M. Fernbach & Bart de Langhe, 2021. "Do People Understand the Benefit of Diversification?," Management Science, INFORMS, vol. 67(12), pages 7322-7343, December.
    3. Kim, Yongtae & Li, Haidan & Li, Siqi, 2014. "Corporate social responsibility and stock price crash risk," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 1-13.
    4. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
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