Corporate social responsibility (CSR) and CEO luck: are lucky CEOs socially responsible?

Abstract

‘Lucky’ CEOs are given stock option grants on days when the stock price is the lowest in the month of the grant, implying opportunistic timing, severe agency problems and poor corporate governance. We find that lucky (opportunistic) CEOs invest significantly less in CSR. The evidence thus does not support the notion that CSR is primarily used to enhance managers’ private benefits at the expense of shareholders. Rather, lucky CEOs appear to view CSR investments as depriving them of the free cash flow they could otherwise exploit.

Keywords:

• corporate social responsibility
• lucky CEOs
• option backdating
• agency theory

JEL Classification:

• G30
• G34

Notes

¹ The industry dummies are based on the first two digits of the SIC codes.

² Managerial ownership is defined as total ownership held by the top five executives reported by COMPUSTAT.