CEO Tenure, Corporate Social Performance, and Corporate Governance: A Korean Study

Ayoung Lee,Jun Hyeok Choi,Saerona Kim

doi:10.3390/su12010099

Abstract

The purpose of this study was to examine the association between Chief Executive Officer (CEO) tenure and corporate social performance with the moderating effect of governance. We investigated whether new CEOs and CEOs in their last year of service were more focused on short-termism than CEOs of other periods. Specifically, we tested whether these CEOs reduced social performance that demands immediate expenditure and expect payoffs in the long run. We also tested whether good governance can mitigate such behaviors, because not all CEOs of the same tenure will act the same, depending on the monitoring environments surrounding them. We employed ordinary least squares (OLS) method and the moderator models using data from the Korean listed companies from 2012 to 2016. Test results showed that only the CEOs of their last year reduced social performance. However, when we considered corporate governance, we found that both groups of CEOs reduced social performance, and that good governance mitigated the adverse effects of the two periods on Corporate Social Responsibility (CSR). Specifically, we tested board independence, board frequency, CEO duality, and board diversity, and found that, for all but board independence, the negative effects of the two periods on social performance were decreased.

Highlights

Prior research has studied the influence of Chief Executive Officer (CEO) tenure on earnings manipulation, performance, or audit fees [1,2,3,4,5,6,7,8,9,10,11]
The negative effect only at the final stage may be in line with Chen et al [19], who argued that CEOs might invest in Corporate Social Responsibility (CSR) in their early stage and harvest the benefits in their later years; unlike Chen et al [19], we discovered that the tenure effect did not appear in a linear fashion
CSR is the natural log of KEJI and showed a mean of 4.120

Summary

Introduction

Prior research has studied the influence of CEO tenure on earnings manipulation, performance, or audit fees [1,2,3,4,5,6,7,8,9,10,11]. Limited studies on CEO tenure have investigated effects other than earnings management, such as audit fees, industry specialist auditors, and board monitoring [7,9,10,18]. This study tested the effect of CEO tenure on CSR in terms of its early years and last year, following Ali and Zhang’s [8] research design. Unlike Chen et al [19] who tested the linearity in the relationship between CEO tenure and CSR, Ali and Zhang’s [8] findings on earnings management implies nonlinearity. We employed ordinary least squares (OLS) and moderator models that used the intersection variables

Objectives

Results

Conclusion