The Complementarity Between CSR Disclosures and the Use of CSR-Based Performance Measures in CEO Annual Incentive Contracts
65 Pages Posted: 24 Sep 2020
Date Written: July 31, 2020
Abstract
Over the past decades, companies have faced increasing pressures to provide information about CSR. However, firms differ in the extent to which they communicate their CSR-related efforts to their stakeholders (henceforth, “CSR disclosures”) and incorporate CSR-based performance measures in executives’ incentive contracts (henceforth, “CSR contracting”). In this study, we examine the relationship between these two CSR practices and argue that CSR disclosures and contracting are complements, as the combination of these two practices signals a strong CSR commitment to stakeholders. We further argue that this complementarity is not uniform but varies with the context. We hypothesize that firms that have a strong CSR commitment but face higher credibility concerns show stronger complementarity between CSR disclosures and contracting and are more likely to use both practices intensively. Using hand-collected data to capture the disclosure quality of CSR reports and intensity of CSR contracting, we find evidence that is consistent with these predictions.
Keywords: CEO Annual Incentive Contract, CSR Disclosure, CSR Commitment, Performance Measurement, Complementarity
JEL Classification: M41
Suggested Citation: Suggested Citation