The Relation between Executive Compensation and Corporate Social Responsibility

Ivan Brick, Oded Palmon and Itzhak Venezia

Chapter 10 in Behavioral Finance:The Coming of Age, 2019, pp 331-364 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter investigates the relationship between the compensation structure of firms’ executive team and Corporate Social Responsibility (CSR). We confirm that CSR correlates negatively with the dispersion of compensation of the members of the executive team (pay dispersion). We then examine whether this observed negative relation may be induced by an omitted variable that is related to optimal contracting, including tax considerations (as seen from the stockholders point of view), managerial entrenchment (benefitting the CEO), or a concern for community members (stakeholders rather than stockholders). While we do not find a single omitted variable that may be responsible for the negative relation, our results indicate that CSR may be an element of optimal contracting, may serve stakeholders other than the stockholders and that it may also partly serve as a perk for CEOs.

Keywords: Behavioral Economics; Behavioral Finance; Behavioral Macro-Finance; Decision Making; Disposition Effect; Financial Crisis; Financial Decision-Making; Financial Market Anomalies; Fintech; Gender Differences; Heuristics; Information Processing Style; International Contagion Market Design; Monetary Policy; Mood; Optimal Portfolio; Overreaction; Peer-to-Peer Lending; Political Economics; Time Pressure; Transparency (search for similar items in EconPapers)
JEL-codes: G30 G41 (search for similar items in EconPapers)
Date: 2019
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