Horizon to Sustainability: Uncover the Instrumental Nature of Corporate Social Responsibility

Abstract

This paper finds that CEO incentive horizon, proxied by their pay duration, has a positive influence on the engagement in corporate social responsibility (CSR), especially when firms face a higher risk of reputation loss, need more stakeholder support, and maintain more effective corporate governance practices. CSR, when practiced by CEOs with longer-horizon incentives, benefits both stakeholders and shareholders in the long run. Further tests suggest that endogenous factors are unlikely to drive our conclusions and inferences. Taken together, our evidence suggests that the instrumental perspective on CSR prevails and long incentive horizon helps align stakeholders’ interests with shareholder value.