Executive Incentives Matter for Corporate Social Responsibility under Earnings Pressure and Institutional Investors Supervision

• Main Authors: Lili Ding, Zhongchao Zhao, Lei Wang
• Format: Article
• Language: English
• Published: MDPI AG 2020-03-01
• Series: Sustainability
• Subjects: corporate social responsibility; earnings pressure; executive incentives; institutional investor; emerging market
• Online Access: https://www.mdpi.com/2071-1050/12/6/2492

This paper theoretically explores the impact of the incentive preferences of executives (i.e., short-term incentives and long-term incentives) on corporate social responsibility (CSR) decisions (i.e., institutional CSR and technical CSR). Further, the paper presents the mechanism through which executives influence CSR activities by the pressures from financial analysts and institutional investors supervision. Using a large sample of China-listed firms over 2007−2017, we achieve some helpful empirical results. The executives with short-term incentives tend to implement technical CSR strategy, while those with long-term incentives tend to implement institutional CSR strategy. Executives with short-term incentives, compared with those with long-term incentives, show stronger inter-temporal tradeoffs behaviors in the earnings pressure context. Furthermore, dedicated institutional investors can effectively attenuate the hypocritical behaviors of executives, and the effectiveness of governance shows a positive relationship with investors’ horizon. Our findings enrich the understanding on the relationship between the executives and CSR decisions in the earnings pressure context and further helps to perfect the institutional design in China’s listed companies.