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The Relation between Executive Compensation and Corporate Social Responsibility

In: Behavioral Finance The Coming of Age

Author

Listed:
  • Ivan Brick
  • Oded Palmon
  • Itzhak Venezia

Abstract

This chapter investigates the relationship between the compensation structure of firms’ executive team and Corporate Social Responsibility (CSR). We confirm that CSR correlates negatively with the dispersion of compensation of the members of the executive team (pay dispersion). We then examine whether this observed negative relation may be induced by an omitted variable that is related to optimal contracting, including tax considerations (as seen from the stockholders point of view), managerial entrenchment (benefitting the CEO), or a concern for community members (stakeholders rather than stockholders). While we do not find a single omitted variable that may be responsible for the negative relation, our results indicate that CSR may be an element of optimal contracting, may serve stakeholders other than the stockholders and that it may also partly serve as a perk for CEOs.

Suggested Citation

  • Ivan Brick & Oded Palmon & Itzhak Venezia, 2019. "The Relation between Executive Compensation and Corporate Social Responsibility," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 10, pages 331-364, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813279469_0010
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    More about this item

    Keywords

    Behavioral Economics; Behavioral Finance; Behavioral Macro-Finance; Decision Making; Disposition Effect; Financial Crisis; Financial Decision-Making; Financial Market Anomalies; Fintech; Gender Differences; Heuristics; Information Processing Style; International Contagion Market Design; Monetary Policy; Mood; Optimal Portfolio; Overreaction; Peer-to-Peer Lending; Political Economics; Time Pressure; Transparency;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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