CEO overconfidence and CSR decoupling

Abstract

Research question/issue This study examines whether there is decoupling between how firms communicate about corporate social responsibility (CSR) and what firms do in terms of CSR. We argue that this CSR decoupling is driven by the CEOs' cognitive biases. Specifically, we propose that overconfident CEOs increase CSR decoupling. Research findings/insights We tested our arguments in a sample of S&P 500 firms for the period of 2006–2014. We find that CEO overconfidence is positively related to the decoupling between the optimistic tone of CSR reporting and the firm's actual corporate social performance. However, the board of directors mitigates the effect of CEO overconfidence on CSR decoupling when outside directors have CSR expertise and ownership incentives. Theoretical/academic implications Previous studies have suggested that CSR decoupling is a function of opportunistic management that can be constrained by external monitoring. We examine CSR decoupling as a function of cognitive biases (such as overconfidence) that can be constrained by internal monitoring. Practitioner/policy implications This study provides insights into the conditions when CSR information released by the firm is symbolic. Practitioners may prevent such symbolic CSR reporting by imposing effective oversight by the board of directors.

Managerial entrenchment, corporate social responsibility, and earnings management

“…We also contribute to the literature of organizational facades (Cho et al, ) and study the link between two forms of organizational facades, that is, CSR decoupling and EM. By doing so, we extend the recent work on the CSR gap (see, Sauerwald & Su, ; Tashman et al ). We reveal that firms decouple CSR actions to camouflage other hypocritical strategies.…”

“…Since both CSR performance and disclosure can generate legitimacy (Hawn & Ioannou, ), they are potent means for managers to pursue their personal goals. It is more apparent with a recent debate on CSR decoupling (Sauerwald & Su, ; Tashman et al, ).…”

“…To keep their self‐service activities undercover, they have to symbolically show that the firm seriously takes up CSR issues (Villarón‐Peramato et al, ). Furthermore, the absence of short term profitability associated with CSR investments motivates managers who are interested in immediate ROI to decouple internal and external CSR actions or in other words, to create a gap between CSR disclosure and performance (Sauerwald & Su, ; Tashman et al, ).…”

Family Firms and Coupling among CSR Disclosures and Performance

“…On the other hand, the academic literature has evidenced that CSR reporting content is ambiguous and presents impression management strategies to manipulate the opinion of stakeholders, limiting its usefulness in the decision-making process (García-Sánchez et al 2020b). These practices are especially worrisome in less sustainable companies, as there is a decoupling between a firm's CSR disclosures and performance (Sauerwald and Su 2019). In addition, several firms adopt silent strategies around specific CSR practices in order to protect its interests from higher stakeholders' expectations.…”

“…This paper contributes to previous literature on CSR decoupling and family business. First, we contribute to the literature on CSR decoupling (Winn and Angell 2000;Delmas and Burbano 2011;Walker and Wan 2012;Bowen 2014;Hawn and Ioannou 2016;Sauerwald and Su 2019;Tashman et al 2019;Graafland and Smid 2019;García-Sánchez et al 2020b), highlighting the role that one of the most relevant blockholders, family firms, can play in corporate decisions regarding the disclosure of more useful and reliable information to various stakeholders. Secondly, this study contributes to the family business literature by focusing on the decisions that these companies make about the relevance of the information they disclose and the adequacy to their CSR actions.…”