The impact of CEO power and institutional discretion on CSR investment

47 Pages Posted: 2 May 2016 Last revised: 24 Mar 2021

See all articles by Wolfgang Breuer

Wolfgang Breuer

RWTH Aachen University

Manuel Hass

RWTH Aachen University - Department of Finance

David Rosenbach

RWTH Aachen University - Department of Finance

Date Written: March 24, 2021

Abstract

Based on a large international sample, we show how the decision-making power of CEOs in conjunction with prevailing institutional discretion relates to corporate resources allocated towards CSR strategy. First, especially with greater institutional discretion, powerful CEOs pursue exaggerated CSR strategies aiming at reputational gains for their private benefit, while not necessarily bearing the costs of their decisions. Second, such CEO-induced CSR enhancements turn out to be defective CSR overinvestment, ultimately entailing a decrease in firm value. By complementing organizational factors with institutional characteristics, we refute previous contradicting empirical evidence regarding a significant CEO effect and show a conditional relation between CEO power and CSR choice. Our results are robust to alternative sample compositions, different variable definitions, and various methodological specifications.

Keywords: CEO, corporate governance, corporate social responsibility, managerial discretion, national institutions

JEL Classification: D03, G11, G18, G34, M14

Suggested Citation

Breuer, Wolfgang and Hass, Manuel and Rosenbach, David, The impact of CEO power and institutional discretion on CSR investment (March 24, 2021). Available at SSRN: https://ssrn.com/abstract=2772550 or http://dx.doi.org/10.2139/ssrn.2772550

Wolfgang Breuer

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Manuel Hass (Contact Author)

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
52056 Aachen, 52056
Germany

David Rosenbach

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

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