Stakeholder engagement as a sustainable development strategy: Managerial entrenchment for cross-shareholdings

We analyze the effect of managerial entrenchment on firms' corporate social responsibility (CSR) activities. We use the cross-shareholding ratio and the stable shareholders ratio, which characterize the Japanese corporate system, as proxy variables for managerial entrenchment. We choose two CSR/environmental, social, and corporate governance scores: those for vendors targeting only Japan and those for vendors targeting the entire world. The results show that increases in the cross-shareholding and stable shareholder ratios decrease CSR activities. These results are consistent with the view that CSR activities are considered a costly investment for managers rather than a type of agency cost. Finally, we reveal that after the enactment of Japan's Corporate Governance Code in 2015, the cross-shareholding and the stable shareholder ratios have not significantly affected CSR activities and that foreign institutional investors have promoted CSR activities.

Automated summary

This study analyzes the impact of managerial entrenchment on firms' corporate social responsibility (CSR) activities. The findings suggest that an increase in managerial entrenchment leads to a decrease in CSR activities. Additionally, the study reveals that after the enactment of Japan's Corporate Governance Code in 2015, managerial entrenchment no longer significantly affects CSR activities, and foreign institutional investors play a role in promoting CSR activities.