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Corporate social responsibility engagement, corporate financial performance and CEO characteristics

Author

Listed:
  • Chao Bian
  • Christopher Gan
  • Zhaohua Li
  • Baiding Hu

Abstract

The current study examines the effect of corporate social responsibility (CSR) engagement on corporate financial performance (CFP). Prior studies document a positive CSR-CFP association without considering the moderating effects of chief executive officer (CEO) characteristics such as compensation incentives and tenure. Our results show evidence of a positive association between CSR and CFP only in the firms managed by short-tenured, high-cash paid CEOs and particularly during an industry's cooling-off period. The results imply that the incentives embedded in the current CEO pay are not effective and CEOs use CSR as a compensation management tool to increase their share-based pay. To encourage a CEO to implement CSR engagement, particularly during an industry's boom period, the board of directors should decrease common-share payments and increase the CEO's option payments. In addition, the proportion of cash compensation in the CEO's total compensation should not be reduced.

Suggested Citation

  • Chao Bian & Christopher Gan & Zhaohua Li & Baiding Hu, 2016. "Corporate social responsibility engagement, corporate financial performance and CEO characteristics," International Journal of Business Governance and Ethics, Inderscience Enterprises Ltd, vol. 11(3), pages 243-265.
    • Handle: RePEc:ids:ijbget:v:11:y:2016:i:3:p:243-265
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