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Corporate Social Responsibility and Managerial Entrenchment

  • Cespa, Giovanni
  • Cestone, Giacinta

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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4648.

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Date of creation: Sep 2004
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Handle: RePEc:cpr:ceprdp:4648
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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.
  2. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  3. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Alexander Dyck & Luigi Zingales, 2002. "The Corporate Governance Role of the Media," NBER Working Papers 9309, National Bureau of Economic Research, Inc.
  5. Michael C. Jensen, 2001. "Value Maximization, Stakeholder Theory, And The Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(3), pages 8-21.
  6. Glen Dowell & Stuart Hart & Bernard Yeung, 2000. "Do Corporate Global Environmental Standards Create or Destroy Market Value?," Management Science, INFORMS, vol. 46(8), pages 1059-1074, August.
  7. Timothy J. Feddersen & Thomas W. Gilligan, 2001. "Saints and Markets: Activists and the Supply of Credence Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(1), pages 149-171, 03.
  8. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
  9. M. Pagano & P. F. Volpin, 2005. "Managers, Workers, and Corporate Control," Journal of Finance, American Finance Association, vol. 60(2), pages 841-868, 04.
  10. repec:dgr:uvatin:20040091 is not listed on IDEAS
  11. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  12. Brian E. Becker, 1995. "Union rents as a source of takeover gains among target shareholders," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(1), pages 3-19, October.
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