Is managerial entrenchment always bad and corporate social responsibility always good? A cross‐national examination of their combined influence on shareholder value

Abstract

Research summary Building on the comparative capitalism's notion of institutional complementarities, we examine whether firms’ simultaneous adoption of managerial entrenchment provisions (MEPs) and corporate social responsibility (CSR) reinforces or undercuts one another in influencing firm financial performance. We propose that the financial impact of such configurations is contingent on the country's institutional setting. In Liberal Market Economies (LMEs), where firms face strong pressures to achieve short‐term goals, the combination of MEPs and CSR creates shareholder value, particularly when firms engage in internally oriented CSR projects. Conversely, in Coordinated Market Economies (CMEs), where institutions already curb short‐term demands, the combined adoption of MEPs and CSR initiatives destroys shareholder value, particularly when this CSR is external. Overall, our study enhances understanding of the institutional complementarity between corporate governance and CSR. Managerial summary This study examines how two organizational practices, managerial entrenchment provisions (MEPs), and corporate social responsibility (CSR), combine between them to improve or reduce firms’ financial success. Our analysis demonstrates that institutional framework has a strong influence on their combined effect. When the institutional context supports solutions to coordination problems among economic agents through market‐based arrangements, MEPs allow the implementation of strategies directed to promote long‐term investments and relationships. In this case, MEPs when paired with CSR allow generating intangibles that contribute to create shareholder value. Contrarily, in frameworks with coordination mechanisms based on nonmarket arrangements, the joint adoption of MEPs and CSR destroys value by increasing the power of managers and blockholders to extract rents at the expense of firms’ minority shareholders.

Sustainable corporate governance: A review of research on long‐term corporate ownership and sustainability

“…The other frequently used database, Asset4, enables a distinction among the items included between "internal" and "external" CSR actions (Hawn & Ioannou, 2016). In recent years, Asset4 data seem to be used more in international, comparative corporate governance studies (Gupta et al, 2020;Rees & Rodionova, 2015;Surroca et al, 2020).…”

Does Technological Innovation Drive Corporate Sustainability? Empirical Evidence for the European Financial Industry in Catching-Up and Central and Eastern Europe Countries

“…General literature, on the one hand, has intensively focused on the relationship between CSR and financial performance, pointing out a huge heterogeneity of results, depending on the sample utilized and the country of study (e.g., [12,17,[23][24][25]). In this chain of thought, Luo and Du [26] empirically encounter that analysts reduce information asymmetry related to CSR between firms and in this way, firms gain visibility by being recognized as best-in-class.…”

Sustainability reporting nexus to corporate governance in scholarly literature

“…Sustainability reporting unlike customary financial reports providing data on only financial performance supplies details on economic, social and environmental performance to a panoply of stakeholders (Junior et al, 2014;La Torre et al, 2020). Sustainability reporting as a vehicle for environmental and social disclosures is a key tool for strengthening transparency and informing wider stakeholders about companies' short-and long-term strategies, actions and policies regarding the environment firms operate (Adams, Managerial entrenchment as a phenomenon closely related to SR is also considered widely (Garcia-Sanchez et al, 2020; Surroca et al, 2020). In fact, the very relationship SR-CG this study is studying is being extensively researched as well (Jain & Jamali, 2016;Jizi, 2017;Pasko et al, 2021e).…”