CSR variability, managerial risk aversion, and hostile takeover threats

Abstract

The quiet life hypothesis argues that, when managers are insulated from the discipline of the takeover market, they tend to be less ambitious, avoiding risky and complex investments that require more managerial time and efforts. In other words, they prefer to live a “quiet life.” Exploiting a distinctive measure of takeover vulnerability principally based on the staggered passage of state legislations, we investigate the quiet life hypothesis using corporate social performance. Our results show that more takeover exposure significantly raises CSR variability, consistent with the prediction of the quiet life hypothesis, where managers adopt riskier CSR strategies and investments when they are more exposed to takeover threats, resulting in higher CSR volatility. Specifically, an increase in takeover exposure by one standard deviation raises CSR variability by 5.23%–6.73%. Additional analysis corroborates the results, including propensity score matching, instrumental-variable analysis, Lewbel's heteroscedastic identification, and entropy balancing.