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Managerial risk taking incentives, corporate social responsibility and firm risk

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  • Chakraborty, Atreya
  • Gao, Lucia Silva
  • Sheikh, Shahbaz

Abstract

We examine if and how corporate social responsibility (CSR) affects the relation between risk taking incentives of CEO compensation (i.e., vega of CEO compensation) and measures of firm risk. Empirical results show that vega has a positive and significant effect on firm risk only in low CSR firms that attempt to maximize only investing stakeholders’ interests. In high CSR firms, that attempt to balance the interests of both investing and non-investing stakeholders, vega has no effect on firm risk. These findings are consistent with previous work that finds that CSR goals alter firm behavior as it tries to accommodate the (often divergent) interests of other stakeholders beyond the traditional shareholders.

Suggested Citation

  • Chakraborty, Atreya & Gao, Lucia Silva & Sheikh, Shahbaz, 2019. "Managerial risk taking incentives, corporate social responsibility and firm risk," Journal of Economics and Business, Elsevier, vol. 101(C), pages 58-72.
    • Handle: RePEc:eee:jebusi:v:101:y:2019:i:c:p:58-72
    DOI: 10.1016/j.jeconbus.2018.07.004
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    8. Shakil, Mohammad Hassan, 2021. "Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity," Resources Policy, Elsevier, vol. 72(C).
    9. Hsu, Feng-Jui & Chen, Sheng-Hung, 2021. "US quantitative easing and firm’s default risk: The role of Corporate Social Responsibility (CSR)," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 650-664.
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