Trick or Treat? The Effect of CEO Relative Pay on Corporate Social Irresponsibility

Liuyang Ren and Xi Zhong

Emerging Markets Finance and Trade, 2024, vol. 60, issue 8, 1795-1814

Abstract: CEO pay structure critically impacts a wide range of strategic choices, including corporate social irresponsibility (CSI), a pervasive and seriously damaging behavior. While the impact of CEO pay structure on CSI has received attention and focus, existing studies need to pay more attention to the potential role of CEO relative pay structure. Based on the behavioral agency theory, this study examines the impact of CEO underpayment and overpayment on CSI. Using panel data on listed companies in China from 2008 to 2019, we find that relative CEO underpayment is significantly positively correlated with CSI, and relative CEO overpayment is significantly negatively correlated with CSI. In addition, we find that industry-level managerial discretion strengthens the positive (negative) relationship between relative CEO underpayment (overpayment) and CSI.

Date: 2024
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DOI: 10.1080/1540496X.2023.2287492

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