The Effect of CEO Compensation Structure on CSR Disclosure

Abstract

The determinants of CSR disclosure have not been researched extensively. In this research, using the framework from traditional voluntary disclosure studies, we connect CEO compensation structure with CSR disclosure. Following Nagar, Nanda, and Wysocki (2003), we predict that more stock compensation for the CEO would lead to more frequent CSR disclosures, by aligning the interest of CEOs and the interest of shareholders. Similarly, we expect that the debt compensation of the CEO would align the interest of CEOs and the interest of debt holders. Because debt holders prefer more disclosure about the private information of CEOs, we predict that there is positive relation between the amount of CEOs’ debt compensation and CSR disclosure. We find that when the CEO’s stock compensation and debt compensation increases, the firm discloses CSR reports more frequently. Prior study has found that the founder CEO does not issue voluntary disclosures frequently (Chen, Chen, and Cheng, 2008). However if the founder CEO receives a substantial amount of stock compensation, the probability of issuing CSR reports increases. This paper sheds lights on the CSR studies by linking the framework of voluntary disclosure studies to CSR disclosures.