How corporate social responsibility can incentivize top managers: A commitment to sustainability as an agency intervention

Over the past few years, scholarly interest in corporate social responsibility (CSR) has been increasing. However, research on the relationship between CSR and firm performance has revealed a complicated relationship. In this paper, we argue that part of the basis for the generally positive relationship between CSR and firm performance might come from a reduction in agency costs. Relying on behavioral agency theory, we construct a model in which CSR moderates the impact of the agency problem on specific firm outcomes, including firm performance, the use of stock options, and goodwill. Based on panel data of publicly traded U.S. firms from 1999 to 2013, we find support for that model. These findings suggest the role of CSR in improving corporate governance efficiency through mitigating agency problems inside the firm.

Automated summary

This paper investigates the relationship between corporate social responsibility (CSR) and firm performance, arguing that CSR might improve firm performance by reducing agency costs. A model is constructed based on behavioral agency theory to show how CSR moderates the impact of agency problems on specific firm outcomes, with findings from panel data of publicly traded U.S. firms supporting the model and suggesting the potential role of CSR in enhancing corporate governance efficiency.