TY - JOUR
T1 - CEO Current and Prospective Wealth Option Compensation and Corporate Social Responsibility
T2 - The Behavioral Agency Model
AU - Harjoto, Maretno Agus
AU - Joo, Sunghoon
AU - Lee, Sang Mook
AU - Song, Hakjoon
N1 - Publisher Copyright:
© 2023 by the authors.
PY - 2024/1
Y1 - 2024/1
N2 - This study examines the relationship between CEO options compensation and corporate social responsibility (CSR) based on the behavioral agency model (BAM). The BAM assumes that the CEO is bounded by loss-aversion behavior. Using constructs from the BAM, i.e., CEO current and prospective wealth from their options compensation, this study examines the differing effects of CEO current wealth and prospective wealth on firms’ CSR strengths, CSR concerns, institutional CSR and technical CSR. Based on a sample of 1565 U.S. firms during 1996 to 2018, the study finds that CEO current wealth is negatively related to firms’ CSR strengths and CSR concerns. The study also finds that CEO prospective wealth is positively related to firms’ CSR strengths but is unrelated to CSR concerns. CEO current wealth is negatively related to institutional CSR, whereas CEO prospective wealth is positively related to institutional and technical CSR. CEO current (prospective) wealth is more strongly and negatively (positively) related to institutional CSR than technical CSR. This study indicates that designing CEO option compensation to align top managers’ interests with the stakeholder interests requires a greater understanding of how CEO bounded rationality behavior toward loss aversion and risk taking is influenced by their option compensation.
AB - This study examines the relationship between CEO options compensation and corporate social responsibility (CSR) based on the behavioral agency model (BAM). The BAM assumes that the CEO is bounded by loss-aversion behavior. Using constructs from the BAM, i.e., CEO current and prospective wealth from their options compensation, this study examines the differing effects of CEO current wealth and prospective wealth on firms’ CSR strengths, CSR concerns, institutional CSR and technical CSR. Based on a sample of 1565 U.S. firms during 1996 to 2018, the study finds that CEO current wealth is negatively related to firms’ CSR strengths and CSR concerns. The study also finds that CEO prospective wealth is positively related to firms’ CSR strengths but is unrelated to CSR concerns. CEO current wealth is negatively related to institutional CSR, whereas CEO prospective wealth is positively related to institutional and technical CSR. CEO current (prospective) wealth is more strongly and negatively (positively) related to institutional CSR than technical CSR. This study indicates that designing CEO option compensation to align top managers’ interests with the stakeholder interests requires a greater understanding of how CEO bounded rationality behavior toward loss aversion and risk taking is influenced by their option compensation.
UR - http://www.scopus.com/inward/record.url?scp=85183358570&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85183358570&partnerID=8YFLogxK
U2 - 10.3390/jrfm17010001
DO - 10.3390/jrfm17010001
M3 - Article
AN - SCOPUS:85183358570
SN - 1911-8066
VL - 17
JO - Journal of Risk and Financial Management
JF - Journal of Risk and Financial Management
IS - 1
M1 - 1
ER -