Executive Compensation and Corporate Social Responsibility: Evidence from Chinese-listed SOEs

The nonlinear effect of executive compensation on corporate social responsibility performance

“…Thus, the study applying static as well as GMM-based dynamic panel data estimation technique confirms an inverted-U shaped relationship that suggests an increase in the level of executive compensation is found to positively affect the CSR performance until a threshold level of 18.7% of net profit suggesting a two-fold effect of the EC on the ESG score of the firm. Notably, the favorable impact of executive compensation on firm value goes in line with the over-nvestment hypothesis (Barnea and Rubin, 2010) based on the agency theory that proposes that executives tend to over-invest in CSR activities, which acts as a major agency relationship between senior executives and shareholders, to build up their image as good executives in front of the shareholders as well as the public (Donaldson and Preston, 1995), thereby increasing their social reputation which ultimately leads them to better career opportunities and stronger negotiation power (Li et al. , 2020).…”

“…However, after acquiring considerable power, the CEO becomes more entrenched and no longer participates or invests in CSR activities (Jiraporn and Chintrakarn, 2013). Moreover, after reaching a certain level, high-level demand of executives to attain promotion depends more on the realization of the economic goals, and hence they tend to reduce CSR investment under the constriction of resources (Li et al, 2020). Also as per upper echelon theory, constant increase in compensation leads to overconfidence in executives, resulting in underestimation of CSR role in hedging business risks and overestimation of the expansionary economic investment benefits (McCarthy et al, 2017).…”

“…However, after acquiring considerable power, the CEO becomes more entrenched and no longer participates or invests in CSR activities (Jiraporn and Chintrakarn, 2013). Moreover, after reaching a certain level, high-level demand of executives to attain promotion depends more on the realization of the economic goals, and hence they tend to reduce CSR investment under the constriction of resources (Li et al. , 2020).…”

“…In India where we get a traditional empiricallyestablished relationship between the pay structures and the financial performance of the firms (Raithatha and Komera, 2016;Ghosh, 2010;Saravanan et al, 2016), a new dynamic to the present relationship in context of CSR performance that is the need of the hour would be really worthwhile for the corporate policy makers. Secondly, limited numbers of researchers (Li et al, 2020;Jouber, 2019) have considered the nonlinear dynamism of this relationship and the issue of controlling for endogeneity in compensation-CSR performance relationship. In this stage, this research effort is instigated with an objective to theoretically and empirically address and determine the nonlinear nature of compensation-CSR relationship in the context of nonfinancial Indian companies.…”

“…, 2016), a new dynamic to the present relationship in context of CSR performance that is the need of the hour would be really worthwhile for the corporate policy makers. Secondly, limited numbers of researchers (Li et al. , 2020; Jouber, 2019) have considered the nonlinear dynamism of this relationship and the issue of controlling for endogeneity in compensation-CSR performance relationship.…”