CEO inside debt and corporate social responsibility

Abstract

Purpose

The purpose of this paper is to empirically examine the relation between incentives from CEO inside debt (deferred compensation and pension benefits) and corporate social responsibility (CSR).

Design/methodology/approach

Instrumental variable (IV-GMM) regressions are used to estimate the relation between CEO inside debt and CSR.

Findings

The results of this paper indicate that CEOs with large inside debt tend to invest more in CSR. Analysis of CSR strengths and concerns supports this finding and shows that CEO inside debt is significantly positively (negatively) associated with CSR strengths (concerns). Further tests indicate that CEO inside debt exerts a positive and significant effect on all five dimensions of social performance (diversity, community, product, employee relations and environment).

Research limitations/implications

The results of this study are based on US corporations. Future research should investigate if these results hold for firms in other countries in order to better our understanding of the relation between CEO inside debt and CSR.

Practical implications

CEOs use CSR as a risk management strategy to reduce corporate risk in order to protect the value of their inside debt.

Social implications

The results in this paper provide a practical tool to boards of corporations to increase investment in CSR. The results suggest that boards can encourage CEOs to invest in CSR by increasing incentives from inside debt.

Originality/value

This study contributes to the literature that examines the relation between inside debt and CSR by showing that CEO inside debt exerts a positive impact on CSR.

Citation

Sheikh, S. (2020), "CEO inside debt and corporate social responsibility", International Journal of Managerial Finance, Vol. 16 No. 4, pp. 525-546. https://doi.org/10.1108/IJMF-10-2019-0397