What’s in It for Me? CEOs’ Rent-Seeking Motivations and Corporate Social Responsibility Decisions

Abstract

Prior research has argued that companies in transition economies engage in corporate social responsibility (CSR) activities to achieve political goals, such as building connections with the government. However, it is unclear why chief executive officers (CEOs) agree to make these politically driven CSR decisions that mainly benefit the controlling shareholders. We show that controlling shareholders may “bribe” the CEOs with greater compensation or perks—a form of economic rents extracted by the CEOs—to make CSR decisions, and such a pattern is more salient in local government-owned companies. We reason that these CSR activities reflect implicit contracting between the controlling shareholders and the CEOs. Through cross-section analyses, we find that the CEO’s economic rents vary with local government fiscal needs, the firm’s governance structure, and CEO power. Furthermore, we demonstrate that increases in CSR-linked compensation lead to a decline in shareholder value.