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Corporate Social Responsability and Managerial Entrenchment

  • Giovanni Cespa
  • Giacinta Cestone
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    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 by the institutionalization of stakeholder protection depriving 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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    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 139.

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    Date of creation: Aug 2004
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    Handle: RePEc:bge:wpaper:139
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    1. Ambec, Stefan & Barla, Philippe, 2002. "A theoretical foundation of the Porter hypothesis," Economics Letters, Elsevier, vol. 75(3), pages 355-360, May.
    2. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
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