Corporate social responsibility and CEO compensation structure
Subject Areas : Management AccountingFraydoon Rahnamay Roodposhti 1 , anahita zandi 2
1 - Professor, Department of Accounting, Islamic Azad University, Science and Research Branch, Tehran, Iran.
2 - Department of Accounting, College of Human Science, Semnan Branch,Islamic Azad University,Semnan,Iran
Keywords: Corporate social responsibilit, CEO Compensation, CEO compensation structure, Equity-based compensation, cash-based compensation,
Abstract :
In this research, how firms' corporate social responsibility (CSR) performance affects CEO compensation structure officer was examined. Traditional agency theory suggests that CEOs engage in CSR for their own interests at the expense of shareholders. A competing argument is that CEOs consider firms' social performance as a business strategy to increase firm value and align their interests with those of shareholders. Our results support the latter prediction. We find that a firm's social performance is negatively associated with the proportion of cash-based compensation, while it is positively associated with the proportion of equity-based compensation. Overall, our findings highlight the positive impact of CSR performance on CEO compensation packages, implying that CEOs' fiduciary behavior of engaging in CSR leads to mitigating agency problems and maximizing firm value.
Arshad, R .and Razak, S.N.A.A. ,(2011).Corporate Social Responsibility Disclosure and Interaction Effects of Ownership Structure on firm Performance. Business, Engineering and Industrial Applications(ISBEIA), 111, 25-28.
Avyvnv et al (2011). Study of corporate social responsibility and financial performance.. Journal of Economic. 38, 77–114.
Agrawal, A., & Mandelker, G. (1987). Managerial incentives and corporate investment
and financing decisions. Journal of Finance, 42, 823–837.
Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between
shareholders. Journal of Business Ethics, 97, 71–86.
Beets, S. D., & Souther, C. C. (1999). Corporate environmental reports: The need for
standards and an environmental assurance service. Accounting Horizons, 13, 129–145.
Benlemlih, M., Shaukat, A., Qiu, Y., & Trojanowski, G. (2016). Environmental and social disclosures and firm risk. Journal of Business Ethics, 1-14
Boyallian, P., & Ruiz-Verdú, P. (2015). CEO risk-taking incentives and bank failure during the 2007-2010 financial crisis.
Borghesi, R., Houston, J. F., & Naranjo, A. (2014). Corporate socially responsible investments:CEO altruism, reputation, and shareholder interests. Journal of Corporate
Finance, 26, 164–181.
Brammer, S., Brooks, C., & Pavelin, S. (2006). Corporate social performance and stock
returns: UK evidence from disaggregate measures. Financial Management, 35, 97–116.
Brown, W. O., Helland, E., & Smith, J. K. (2006). Corporate philanthropic practices.
Journal of Corporate Finance, 12, 855–877.
Cai, Y., Jo, H., & Pan, C. (2011). Vice or virtue? The impact of corporate social responsibilityon executive compensation. Journal of Business Ethics, 104, 159–173.
Cheng, H., Hong, H., Scheinkman, J. (2015). Yesterday's heroes: Compensation and creative
risk-taking, Journal of Finance, 70, 839–879.
Dai, Y., Rau, P. R., Stouraitis, A., & Tan, W. (2017). An ill wind? Terrorist attacks and CEO
compensation. Working paper. University of Cambridge.
Deng, X., Kang, J., & Low, B. S. (2013). Corporate social responsibility and stakeholder
value maximization: Evidence from mergers. Journal of Financial Economics, 110,
87–109.
El Ghoul, S., Guedhami, O., Kwok, C., & Mishra, D. (2011). Does corporate social responsibilityaffect the cost of capital? Journal of Banking & Finance, 35, 2388–2406.
Harris, M., & Raviv, A. (1979). Optimal incentive contracts with imperfect information.
Journal of Economic Theory, 20, 231–259.
Gan, H., & Park, M. (2016). Are more able CEOs getting more compensated? Evidence
from the pay-for-performance sensitivity of equity-based incentives. Advances in
Hasan, M. M., & Habib, A. (2017). Corporate life cycle, organizational financial resources and corporate social responsibility. Journal of Contemporary Accounting & Economics, 13(1), 20-36.
Hemingway, C., & Maclagan, P. (2004). Managers’ personal values as drivers of corporate
social responsibility. Journal of Business Ethics, 50, 33–44.
Hillman, A., & Keim, G. (2001). Shareholder value, stakeholder management and socialissues: What’s the bottom line? Strategic Management Journal, 22, 125–139.
Haugen, R., & Senbet, L. (1981). Resolving the agency problems of external capital
through options. Journal of Finance, 36, 629–648.
Indjejikian, R. J. (1999). Performance evaluation and compensation research: An agency
perspective. Accounting Horizons, 13, 147–157.
Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs
and ownership structure. Journal of Financial Economics, 3, 305–350.
Jiao, Y. (2010). Stakeholder welfare and firm value. Journal of Banking & Finance, 34,
2549–2561.
Karim, K., Lee, E., & Suh, S. (2018). Corporate social responsibility and CEO compensation structure. Advances in Accounting.
Karpoff, J., Lott, J., & Wehrly, E. (2005). The reputational penalties for environmental
violations: Empirical evidence. Journal of Law and Economics, 48, 653–675.
Kim, Y., Park, M., & Wier, B. (2012). Is earnings quality associated with corporate social
responsibility? The Accounting Review, 87, 761–796.
Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial
Economics, 115, 304–329.
Masulis, R. W., & Reza, S. W. (2015). Agency problems of corporate philanthropy. Review
of Financial Studies, 28, 592–636.
Milbourn, T. (2003). CEO reputation and stock-based compensation. Journal of Financial
Economics, 68, 233–262.
Ozkan, N. (2011). CEO compensation and firm performance: An empirical investigation
of UK panel data. European Financial Management, 17, 260–285.
Nelling, E., & Webb, E. (2009). Corporate social responsibility and financial performance:
The 'virtuous circle’ revisited. Review of Quantitative Finance and Accounting, 32,
197–209.
Potts, M. (2006). CEO compensation and virtue ethics. In R. W. Kolb (Ed.). The ethics of
executive compensation (pp. 101–115). Wiley Blackwell Publishing Ltd.
Rekker, S., Benson, K., & Faff, R. (2014). Corporate social responsibility and CEO compensation revisited: Do disaggregation, market stress, gender matter? Journal ofEconomics and Business, 72, 84–103.
Salvsky and Zvlch (2014). The relationship between the disclosure of corporate social responsibility and quality of earnings. Scand. J. Econ. 95, 607-625.
Sharfman, M., & Fernando, C. (2008). Environmental risk management and the cost of
capital. Strategic Management Journal, 29, 569–592.
Waddock, S., & Graves, S. (1997). The corporate social performance-financial performance
link. Strategic Management Journal, 18, 303–319.
Wahba, H., & Elsayed, K. (2015). The mediating effect of financial performance on the relationship between social responsibility and ownership structure. Future Business Journal, 1(1), 1-12.
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Arshad, R .and Razak, S.N.A.A. ,(2011).Corporate Social Responsibility Disclosure and Interaction Effects of Ownership Structure on firm Performance. Business, Engineering and Industrial Applications(ISBEIA), 111, 25-28.
Avyvnv et al (2011). Study of corporate social responsibility and financial performance.. Journal of Economic. 38, 77–114.
Agrawal, A., & Mandelker, G. (1987). Managerial incentives and corporate investment
and financing decisions. Journal of Finance, 42, 823–837.
Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between
shareholders. Journal of Business Ethics, 97, 71–86.
Beets, S. D., & Souther, C. C. (1999). Corporate environmental reports: The need for
standards and an environmental assurance service. Accounting Horizons, 13, 129–145.
Benlemlih, M., Shaukat, A., Qiu, Y., & Trojanowski, G. (2016). Environmental and social disclosures and firm risk. Journal of Business Ethics, 1-14
Boyallian, P., & Ruiz-Verdú, P. (2015). CEO risk-taking incentives and bank failure during the 2007-2010 financial crisis.
Borghesi, R., Houston, J. F., & Naranjo, A. (2014). Corporate socially responsible investments:CEO altruism, reputation, and shareholder interests. Journal of Corporate
Finance, 26, 164–181.
Brammer, S., Brooks, C., & Pavelin, S. (2006). Corporate social performance and stock
returns: UK evidence from disaggregate measures. Financial Management, 35, 97–116.
Brown, W. O., Helland, E., & Smith, J. K. (2006). Corporate philanthropic practices.
Journal of Corporate Finance, 12, 855–877.
Cai, Y., Jo, H., & Pan, C. (2011). Vice or virtue? The impact of corporate social responsibilityon executive compensation. Journal of Business Ethics, 104, 159–173.
Cheng, H., Hong, H., Scheinkman, J. (2015). Yesterday's heroes: Compensation and creative
risk-taking, Journal of Finance, 70, 839–879.
Dai, Y., Rau, P. R., Stouraitis, A., & Tan, W. (2017). An ill wind? Terrorist attacks and CEO
compensation. Working paper. University of Cambridge.
Deng, X., Kang, J., & Low, B. S. (2013). Corporate social responsibility and stakeholder
value maximization: Evidence from mergers. Journal of Financial Economics, 110,
87–109.
El Ghoul, S., Guedhami, O., Kwok, C., & Mishra, D. (2011). Does corporate social responsibilityaffect the cost of capital? Journal of Banking & Finance, 35, 2388–2406.
Harris, M., & Raviv, A. (1979). Optimal incentive contracts with imperfect information.
Journal of Economic Theory, 20, 231–259.
Gan, H., & Park, M. (2016). Are more able CEOs getting more compensated? Evidence
from the pay-for-performance sensitivity of equity-based incentives. Advances in
Hasan, M. M., & Habib, A. (2017). Corporate life cycle, organizational financial resources and corporate social responsibility. Journal of Contemporary Accounting & Economics, 13(1), 20-36.
Hemingway, C., & Maclagan, P. (2004). Managers’ personal values as drivers of corporate
social responsibility. Journal of Business Ethics, 50, 33–44.
Hillman, A., & Keim, G. (2001). Shareholder value, stakeholder management and socialissues: What’s the bottom line? Strategic Management Journal, 22, 125–139.
Haugen, R., & Senbet, L. (1981). Resolving the agency problems of external capital
through options. Journal of Finance, 36, 629–648.
Indjejikian, R. J. (1999). Performance evaluation and compensation research: An agency
perspective. Accounting Horizons, 13, 147–157.
Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs
and ownership structure. Journal of Financial Economics, 3, 305–350.
Jiao, Y. (2010). Stakeholder welfare and firm value. Journal of Banking & Finance, 34,
2549–2561.
Karim, K., Lee, E., & Suh, S. (2018). Corporate social responsibility and CEO compensation structure. Advances in Accounting.
Karpoff, J., Lott, J., & Wehrly, E. (2005). The reputational penalties for environmental
violations: Empirical evidence. Journal of Law and Economics, 48, 653–675.
Kim, Y., Park, M., & Wier, B. (2012). Is earnings quality associated with corporate social
responsibility? The Accounting Review, 87, 761–796.
Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial
Economics, 115, 304–329.
Masulis, R. W., & Reza, S. W. (2015). Agency problems of corporate philanthropy. Review
of Financial Studies, 28, 592–636.
Milbourn, T. (2003). CEO reputation and stock-based compensation. Journal of Financial
Economics, 68, 233–262.
Ozkan, N. (2011). CEO compensation and firm performance: An empirical investigation
of UK panel data. European Financial Management, 17, 260–285.
Nelling, E., & Webb, E. (2009). Corporate social responsibility and financial performance:
The 'virtuous circle’ revisited. Review of Quantitative Finance and Accounting, 32,
197–209.
Potts, M. (2006). CEO compensation and virtue ethics. In R. W. Kolb (Ed.). The ethics of
executive compensation (pp. 101–115). Wiley Blackwell Publishing Ltd.
Rekker, S., Benson, K., & Faff, R. (2014). Corporate social responsibility and CEO compensation revisited: Do disaggregation, market stress, gender matter? Journal ofEconomics and Business, 72, 84–103.
Salvsky and Zvlch (2014). The relationship between the disclosure of corporate social responsibility and quality of earnings. Scand. J. Econ. 95, 607-625.
Sharfman, M., & Fernando, C. (2008). Environmental risk management and the cost of
capital. Strategic Management Journal, 29, 569–592.
Waddock, S., & Graves, S. (1997). The corporate social performance-financial performance
link. Strategic Management Journal, 18, 303–319.
Wahba, H., & Elsayed, K. (2015). The mediating effect of financial performance on the relationship between social responsibility and ownership structure. Future Business Journal, 1(1), 1-12.