The role of business strategy and CEO compensation structure in driving corporate social responsibility: Linkage towards a sustainable development perspective

Abstract

AbstractThis study extends prior studies by analyzing how business strategies affect corporate social responsibility (CSR) engagement. Studies in the business strategy and compensation literature further investigate whether firms have superior CSR if they tend to align their compensation with their company's overall strategy. This tendency would tend to encourage firms to make their investment decisions on the basis of a long‐term sustainability development perspective. The data consist of a broad cross‐section of companies and industries in the United States for the 2003–2012 period. To avoid a potential endogenous effect, a two‐stage instrumental variables regression is also adopted in this study. It is found that the prospector business strategy has a strong positive association with CSR. In addition, CEOs with short‐term compensation have less incentive to invest in CSR if their firms adopt a defender strategy. The opposite is true for the prospector group, suggesting that sometimes, misfits may also produce good CSR outcomes.