Corporate social responsibility and CEO compensation: the moderating effect of corporate governance

Abstract

This study attempts to provide empirical evidence on the real motivation of CEOs to engage in corporate social responsibility. Based on the Agency and Stakeholder theories, the power of each component in the CEO compensation structure is employed. Moreover, a corporate governance index was developed to test how engagement in CSR activities affected CEO compensation in different governance practices. This study employs panel data analysis, utilizing 44 Jordanian industrial companies over the period 2010–2018. The main estimation method used in the present study was the generalized least square random effect (GLS). The findings of this paper revealed that an increase in CSR activities was accompanied by an increase in the CEO cash component compensation. Furthermore, this positive relationship was found to be more pronounced in firms with weak corporate governance, and thus supported the overinvestment hypothesis suggested by agency theory. These findings are robust under the dynamic panel estimator generalized method of moments (GMM) and using different measures of CSR. Our results implied important insights, showing that increasing CSR in the absence of effective monitoring facilitated CEOs’ self-seeking behavior that eventually may harm corporate value.