CSR variability, managerial risk aversion, and hostile takeover threats

Abstract

The quiet life hypothesis argues that, when managers are insulated from the discipline of the takeover market, they tend to be less ambitious, avoiding risky and complex investments that require more managerial time and efforts. In other words, they prefer to live a "quiet life." Exploiting a distinctive measure of takeover vulnerability principally based on the staggered passage of state legislations, we investigate the quiet life hypothesis using corporate social performance. Our results show that more takeover exposure significantly raises CSR variability, consistent with the prediction of the quiet life hypothesis, where managers adopt riskier CSR strategies and investments when they are more exposed to takeover threats, resulting in higher CSR volatility. Specifically, an increase in takeover exposure by one standard deviation raises CSR variability by 5.23%-6.73%. Additional analysis corroborates the results, including propensity score matching, instrumental-variable analysis, Lewbel's heteroscedastic identification, and entropy balancing.

Climate change exposure and dividend policy: evidence from textual analysis

“…To minimize endogeneity even further, we use a novel method known as entropy balancing to eliminate differences in observable attributes between the treatment and the control groups. [5] This approach is gaining popularity in the social sciences as a solution to handle issues that cannot be solved using ordinary PSM (Chindasombatcharoen et al , 2023; Hainmueller, 2012; Likitapiwat et al , 2023; McMullin and Schonberger, 2020; Treepongkaruna et al , 2022). According to Gaver and Utke (2019), entropy balancing ensures that covariate imbalance improves after matching.…”

“…According to Gaver and Utke (2019), entropy balancing ensures that covariate imbalance improves after matching. By reducing data losses and random matching, entropy balancing enhances testing efficiency even further (Hossain et al , 2023; Likitapiwat et al , 2023).…”

“…[5] This approach is gaining popularity in the social sciences as a solution to handle issues that cannot be solved using ordinary PSM (Chindasombatcharoen et al, 2023;Hainmueller, 2012;Likitapiwat et al, 2023;McMullin and Schonberger, 2020;Treepongkaruna et al, 2022). According to Gaver and Utke (2019), entropy balancing ensures that covariate imbalance improves after matching.…”

“…According to Gaver and Utke (2019), entropy balancing ensures that covariate imbalance improves after matching. By reducing data losses and random matching, entropy balancing enhances testing efficiency even further (Hossain et al, 2023;Likitapiwat et al, 2023). This is how we conduct entropy balancing: As our treatment group, we choose companies in the highest percentile of climate policy uncertainty.…”

Does employee stock ownership plan have monitoring and incentive effects? --An analysis based on the perspective of corporate risk taking

“…Unlike the ESOP in the United States, Chinese ESOP involves company governance. Based on the principal-agent theory [ 53 ] and the "enjoy a peaceful life" motivation [ 54 ], managers may sacrifice shareholder interests to cater to employees' short-term stock price preferences, reduce conflicts, carry out market capitalization management, and have a low willingness to assume risks, at most, engaging in strategic innovation.…”