DP4648 Corporate Social Responsibility and Managerial Entrenchment

Author(s): Giovanni Cespa, Giacinta Cestone
Publication Date: September 2004
Keyword(s): corporate governance, corporate social responsibility, managerial entrenchment, social activism, stakeholders
JEL(s): G34, G38
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4648

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased by the institutionalization of stakeholder protection depriving incumbent CEOs of activists? support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others? agenda.