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Corporate Social Responsibility and Managerial Entrenchment

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  • Giovanni Cespa

    ()
    (University of Salerno, CSEF and CEPR)

  • Giacinta Cestone

    ()
    (University of Salerno, CSEF and CEPR)

Abstract

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased when explicit stakeholder protection is introduced so as to deprive incumbent CEOs of activists’ support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others’ agenda

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 173.

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Date of creation: 01 Jan 2007
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Publication status: Published in Journal of Economics and Management Strategy, 2007, 16 (3), pages 741-771
Handle: RePEc:sef:csefwp:173

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Keywords: Corporate Governance; Corporate Social Responsibility; Managerial Entrenchment; Social Activism; Stakeholders;

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References

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  1. Marco Pagano & Paolo F. Volpin, 2005. "The Political Economy of Corporate Governance," American Economic Review, American Economic Association, vol. 95(4), pages 1005-1030, September.
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  9. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  10. Pagano, Marco & Volpin, Paolo, 2002. "Managers, Workers and Corporate Control," CEPR Discussion Papers 3649, C.E.P.R. Discussion Papers.
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