Stakeholder orientation and managerial incentives: Evidence from a natural experiment

Arthur Romec

International Review of Financial Analysis, 2023, vol. 88, issue C

Abstract: This paper examines the influence of stakeholder orientation on the design of managerial incentives. Our tests exploit the quasi-natural experiment provided by the staggered adoption of directors' duties laws (i.e., state-level laws that explicitly expand board members' duties to act in the best interests of all stakeholders). We find that the enactment of these laws results in a significant decrease in the sensitivity of CEO wealth to the stock price. This decrease is mostly driven by firms most exposed to pressures to maximize short-term stock price. Our results suggest that the decrease in the sensitivity of CEO compensation to the stock price is an important channel boards use to internalize stakeholder orientation.

Keywords: Stakeholder orientation; Executive compensation; Managerial incentives; directors' duties laws; Corporate social responsibility (search for similar items in EconPapers)
JEL-codes: G21 G30 J33 M14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:88:y:2023:i:c:s105752192300193x

DOI: 10.1016/j.irfa.2023.102677

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