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Corporate social responsibility and the alignment of CEO and shareholders wealth: Does a strong alignment induce or restrain CSR?

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  • Hyeong Joon Kim
  • Seongjae Mun
  • Seung Hun Han

Abstract

We examine whether a strong alignment of the chief executive officer (CEO) and shareholders wealth induces or restrains the firm's corporate social responsibility (CSR) engagement. CSR can enhance shareholders wealth consistent with stakeholder theory. However, CEOs maximizing their own utilities have an incentive to overinvest corporate resources for CSR engagement at shareholders' expense. Therefore, the strong alignment of the CEO and shareholders wealth is expected to lead the CEO to engage less in some CSR activities, particularly those are questionable to enhance shareholders wealth or those are only good for the CEO's private benefit. Empirically, we find that firms with strongly aligned CEOs are less likely to strengthen CSR activities for external stakeholders such as the environment, community, and human rights. This suggests that strengthening CSR for external stakeholders appears to be the consequence of agency problem rather than stakeholder theory. Overall, we argue that CEO‐shareholders wealth alignment has a non‐monotonic impact on CSR activities, and it can effectively mitigate the agency problem by restraining overinvestment in some CSR activities that may harm shareholders wealth.

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  • Hyeong Joon Kim & Seongjae Mun & Seung Hun Han, 2023. "Corporate social responsibility and the alignment of CEO and shareholders wealth: Does a strong alignment induce or restrain CSR?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 720-741, March.
    • Handle: RePEc:wly:corsem:v:30:y:2023:i:2:p:720-741
    DOI: 10.1002/csr.2384
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