Corporate social responsibility and CEO compensation: the moderating effect of corporate governance

Figures & data

Table 1. Sub-sectors in the industrial sector

Industrial sector	Number of Firms
Pharmaceutical and medical industries	4
Chemical industries	6
Food and beverages	9
Tobacco and cigarettes	2
Mining and extraction industries	10
Engineering and construction	8
Electrical industries	3
Clothing industries	2
Total	44

Table 2. Descriptive Statistics

Variable	Average	SD	Min	Max
CCOMP	0.67	0.39	0.000	1
ECOMP	0.23	0.33	0.000	1
CSR	0.18	0.12	−0.56	0.58
BZ	8.43	2.15	4	13
IND	0.41	0.26	0.000	1
CEOW	0.02	0.04	0.000	0.37
INS	0.17	0.22	0.000	0.98
BL	0.73	0.45	0.000	1
TQ	0.89	0.66	0.05	5.89
FZ	7.29	0.55	5.72	8.62
LEV	0.30	0.19	0.000	1
CEODUL	0.45	0.24	0.000	1
CEOTEN	9.7	9.25	1	54
LIQ	0.32	0.08	0.01	3.61
MB	0.96	1.02	−3.12	5.75
Beta	1.20	0.75	0.69	2.01
RET	0.11	0.31	−0.01	0.75
Risk	0.86	0.42	0.092	1.94

CCOMP: CEO cash-based compensation, ECOMP: CEO equity-based compensation, CSR: corporate social responsibility index, BZ: board size, IND: board independence, CEOW: CEO ownership, INS: insider ownership, BL: dummy variable = 1 if the firm has external block holders and zero otherwise, TQ: Tobin q, FZ: firm size, LEV: leverage. CEODUL: CEO duality which is measured by a dummy variable equal to one, if the CEO belongs to the board and zero otherwise. CEOTEN: CEO tenure is measured by the total number of years the CEO works in his position. LIQ: firm liquidity measured as the current assets divided by current liabilities. MB: market value of equity divided by book value of equity. Beta: is market beta calculated from the regression of a firms’ excess returns on the Amman stock exchange value-weighted index. RET: Aggregated returns for 12 months. Risk: Standard deviation of aggregated returns over 5 years.

Table 3. Correlation matrix

	CCOMP	ECOMP	CSR	IND	CEOW	BZ	BL	FZ	TQ	LEV	INS	CEODUL	CEOTEN	LIQ	BM	BETA	RET	RISK
CCOMP	1
ECOMP	−0.59	1
CSR	0.35	−0.04	1
IND	0.169	0.22	0.08	1
CEOW	−0.63	0.093	0.05	0.27	1
BZ	0.28	0.185	0.423	0.05	0.090	1
BL	−0.03	−0.05	0.423	0.06	0.094	0.420	1
FZ	0.026	0.053	0.069	−0.151	−0.11	0.017	−0.04	1
TQ	−0.08	0.076	0.211	−0.03	−0.029	0.088	0.182	0.081	1
LEV	0.06	0.017	0.048	−0.021	−0.025	0.043	0.133	0.144	−0.064	1
INS	0.038	0.404	0.084	0.199	0.42	0.03	0.11	−0.161	−0.090	0.009	1
CEODUL	0.021	0.0654	0.025	−0.124	−0.251	0.036	0.154	0.213	−0.054	0.007	0.024	1
CEOTEN	0.057	0.078	0.054	0.010	0.221	0.012	0.184	0.311	0.025	0.0124	0.084	0.032	1
LIQ	0.065	0.012	0.085	0.251	−0.014	0.081	0.001	0.381	0.098	0.065	0.002	0.001	0.058	1
BM	0.24	0.104	0.23	0.057	0.017	0.23	−0.067	0.250	−0.017	0.029	0.008	0.004	0.015	0.081	1
BETA	0.087	0.037	0.021	−0.036	0.098	0.156	−0.210	0.0267	0.31	0.035	0.018	−0.005	0.031	0.014	0.25	1
RET	0.31	0.25	0.198	−0.001	0.026	0.270	0.065	0.095	0.053	0.086	0.002	−0.013	0.0857	0.074	0.152	0.195	1
RISK	0.21	0.35	0.13	0.05	0.059	−0.06	0.005	0.36	0.27	0.19	0.16	0.08	0.17	−0.057	0.189	0.0147	0.154	1

Table 4. Univariate Analysis

	Mean values for High CSR Firms	Mean values for Low CSR Firms	t-statistics
CSR	0.53	0.22	(21.94)***
CCOMP	0.76	0.67	(7.444)***
ECOMP	0.21	0. 26	(−1.683)***
IND	0. 41	0.38	(1.134)
BZ	8.26	5.87	(9.11)***
BL	0.84	0.49	(8.420)***
CEOW	0.015	0.02	(−1.100)
INS	0.21	0.16	(1.618)
FZ	7.29	6.98	(3.116)***
LEV	0.31	0.29	(0.950)
TQ	0.94	0.68	(3.220)***
CEOTEN	7.65	4.50	(8.45)***
CEODUL	0.31	0.28	(−0.923)
LIQ	0.29	0.22	(1.352)*
MB	0.82	0.80	(0.93)
Beta	0.95	0.45	(2.856)***
RET	0.10	0.07	(1.023)
Risk	0.78	0.33	(4.521)**

***;**;* represents significance at the 1%, 5% and 10% level respectively.

Table 5. The Relationship between CSR and CEO Compensation

	(A) CCOMP	(B) ECOMP
CSR	0.812*** (0.000)	−0.051 (0.640)
IND	0.314*** (0.000)	0.060 (0.213)
INS	0.087 (0.249)	0.196*** (0.004)
CEOW	−3.401*** (0.000)	3.415*** (0.000)
BZ	0.042*** (0.000)	0.018*** (0.000)
BL	−0.096** (0.010)	− 0.019 (0.614)
FZ	0.049** (0.030)	0.015* (0.060)
TQ	−0.019 (0.140)	0.013 (0.518)
LEV	0.059 (0.601)	0.097 (0.186)
CEODUL	0.29** (0.030)	0.211* (0.091)
CEOTEN	0.092** (0.032)	0.016** (0.040)
LIQ	0.089** (0.021)	0.099* (0.079)
MB	0.032*** (0.002)	0.095*** (0.005)
Risk	0.003* (0.073)	0.008* (0.080)
Beta	0.006 (0.106)	0.007 (0.113)
RET	−0.031 (0.185)	−0.012 (0.178)
LAGRET	−0.002 (0.156)	−0.004 (0.161)
Con.	0.229 (0.103)	0.041 (0.680)
R^2	0.59	0.61
Prob > chi2	0.000	0.000
# of Obs.	396	396

***;**;* represent significance at the 1%, 5% and 10% level respectively.

Table 6. The Relationship between CSR and CEO Compensation for Strong and Weak governance

Strong Governance			Weak Governance
	CCOMP	ECOMP	CCOMP	ECOMP
CSR	0.449* (0.071)	−0.261 (0.250)	0.792*** (0.000)	0.083 (0.501)
IND	−0.011 (0.921)	0.112 (0.630)	0.283*** (0.000)	0.019 (0.766)
INS	0.090 (0.135)	0.213** (0.040)	0.068 (0.173)	0.263*** (0.000)
CEOW	−2.436*** (0.000)	2.618*** (0.000)	−4.486*** (0.000)	5.396*** (0.000)
BZ	−0.009 (0.716)	0.025 (0.259)	0.019** (0.020)	0.021*** (0.000)
BL	−0.329* (0.072)	0.125 (0.193)	0.099** (0.018)	0.009*** (0.000)
FZ	0.108 * (0.075)	0.089** (0.043)	0.016* (0.059)	0.018 (0.197)
TQ	0.037 (0.139)	0.017 (0.694)	−0.014 (0.685)	−0.008 (0.869)
LEV	−0.031 (0.790)	0.067 (0.739)	0.052 (0.619)	0.019 (0.898)
CEODUL	0.230 (0.124)	0.235 (0.127)	0.301** (0.031)	0.298* (0.070)
CEOTEN	0.042** (0.030)	0.051** (0.036)	0.041** (0.036)	0.052** (0.038)
LIQ	0.070** (0.025)	0.078** (0.039)	0.041** (0.020)	0.051** (0.032)
MB	0.028*** (0.002)	0.031*** (0.008)	0.032*** (0.000)	0.088*** (0.000)
Risk	0.006* (0.089)	0.005* (0.090)	0.002* (0.077)	0.005* (0.069)
Beta	0.001 (0.129)	0.008 (0.136)	0.005 (0.132)	0.009 (0.141)
RET	−0.029 (0.091)	−0.026 (0.094)	−0.030 (0.094)	−0.029 (0.098)
LAGRET	−0.005 (0.166)	−0.006 (0.168)	−0.008 (0.162)	−0.009 (0.167)
Con.	1.52 ** (0.032)	−0.543 (0.390)	0.043 (0.772)	−0.098 (0.425)
R^2	0.58	0.60	0.61	0.55
# of Obs.	225		171
Prob > chi2	0.000	0.000	0.000	0.000

***;**;* represent significance at the 1%, 5% and 10% level respectively.

Table 7. Moderating Effect of Corporate Governance

	CCOMP	ECOMP
CSR	3.086*** (0.000)	0.351 (0.185)
CGINX	0.229*** (0.000)	0.031 (0.149)
CSR * CGINX	−0.762*** (0.000)	−0.081 (0.399)
CEOW	−3.612*** (0.000)	3.751*** (0.000)
FZ	0.040*** (0.002)	0.021* (0.063)
TQ	−0.025 (0.578)	0.071 (0.519)
LEV	−0.428 (0.616)	0.058 (0.447)
CEODUL	0.30** (0.034)	0.219* (0.090)
CEOTEN	0.013** (0.030)	0.018** (0.034)
LIQ	0.091** (0.020)	0.090* (0.060)
MB	0.038*** (0.000)	0.098*** (0.000)
Risk	0.015 (0.069)	0.019 (0.086)
Beta	0.009 (0.114)	0.009 (0.115)
RET	−0.039 (0.075)	−0.017 (0.070)
LAGRET	−0.004 (0.159)	−0.008 (0.166)
Con.	0.210** (0. 045)	0.015 (0.682)
R^2	0.60	0.59
Prob > chi2	0.000	0.000
# of Obs.	396	396

***;**;* represent significance at the 1%, 5% and 10% level respectively.

Table 8. The Effect of CSR on CEO-Compensation and Firm Value

Dependent Variable		Panel A (TQ)		Panel B (TQ)
CSR		−0.319** (0.021)		−0.108 (0. 176)
CCOMP		0.169** (0.014)
CCOMP *CSR		−0.110** (0.012)
ECOMP				−0.721 (0.219)
ECOMP *CSR				0.326 (0.134)
LEV		−0.386** (0.025)		−0.421** (0.040)
CEOW		3.521** (0.021)		1.673** (0.022)
BZ		−0.138 (0.325)		0.232 (0.812)
FZ		0.069** (0.023)		0.029* (0.070)
IND		− 0.597*** (0.000)		−0.020* (0.090)
BL		0.074 (0.127)		−0.002 (0.156)
INS		0.068 (0.325)		0.058 (0.189)
CEODUL		0.310** (0.030)		0.298* (0.061)
CEOTEN		0.061*** (0.000)		0.069*** (0.000)
LIQ		0.089** (0.041)		0.061** (0.045)
MB		0.049** (0.037)		0.031** (0.041)
Risk		0.006 (0.075)		0.008 (0.080)
Beta		0.002 (0.198)		0.001 (0.199)
RET		−0.029 (0.081)		−0.023 (0.087)
LAGRET		−0.001 (0.851)		−0.008 (0.858)
Con.		0. 328* (0.081)		0.821** (0.030)
R^2		0.62		0.58
# of Obs.		396		396

***;**;* represent significance at the 1%, 5% and 10% level respectively.

Table 9. The Relationship between CSR and CEO Compensation using Dynamic GMM Estimator

	(A) CCOMP	(B) ECOMP
CSR	0.781** (0.021)	−0.389 (0.131)
IND	0.275*** (0.000)	0.019 (0.930)
INS	0.325** (0.010)	0.191* (0.060)
CEOW	−2.853** (0.010)	2.128** (0.030)
BZ	0.025* (0.071)	0.015* (0.080)
BL	−0.018* (0.080)	− 0.022 (0.779)
FZ	0.041** (0.030)	0.052* (0.076)
TQ	0.006 (0.880)	0.028 (0.246)
LEV	0.176 (0.378)	−0.210 (0.428)
CEODUL	0.31** (0.021)	0.218* (0.090)
CEOTEN	0.096** (0.031)	0.019** (0.039)
LIQ	0.091** (0.020)	0.097* (0.078)
MB	0.039*** (0.000)	0.098*** (0.000)
Risk	0.004* (0.099)	0.009* (0.076)
Beta	0.009 (0.111)	0.008 (0.119)
RET	−0.038 (0.089)	−0.017 (0.075)
LAGRET	−0.006 (0.158)	−0.007 (0.165)
Con.	0.148 (0.791)	0.284 (0.479)
Year fixed effect	Included	Included
AR (1) (p-value)	0.003	0.005
AR (2) (p-value)	0.598	0.201
Hansen (p-value)	0.591	0.535

***; **; * represent significance at the 1%, 5% and 10% level respectively. AR (1) and AR (2) refer to tests for first-order and second-order serial correlation in the first-differenced residuals where H₀: no serial correlation. Hansen test of over-identification where H₀: all instruments are valid.

Table

Strengths	Concerns
Community Information strength	Community Information Concern
Charitable Giving.	Tax Disputes.
Support for Housing.	Negative Economic Impact.
Support for Arts and Sports.
Support for Education.
Volunteer Programs.
Create Jobs opportunity.
Non-Jordanian Charitable Giving.
Environment Information Strength	Environment Information Concern
Recycling	Hazardous Waste
Pollution Prevention.	Regulatory Problems.
Clean Energy.
Planting Trees.
Communications.
Diversity Information Strength	Diversity Information Concern
CEO.	Non-Representation.
Board of Directors.
Employment of the Disabled.
Employee relations information Strength	Employee Relations Information Concerns
No-Layoff Policy.	Workforce Reductions.
Cash Profit Sharing.	Poor Labor Unions Relation.
Employee Involvement.	Health and Safety Concerns.
Health and Safety Strength.
Retirement Benefits.
Training employee programs.
Number of employees who involved in training programs
Strong labor unions relation.
Employee loans.
Product Information Strength	Product Information Concern
Quality.	Product Safety
R&D/Innovation.	Penalties
These items are similar to those employed by Cai et al., 2011(and Karim et al., 2018 (

Table

Community Information Strengths
1	Support for Education. The firm donations to education programs or the firm supported job-training programs for youth.
2	Create jobs opportunity.
3	Volunteer Programs. The firm has an exceptionally strong volunteer program.
Community Information Concern
4	Tax Disputes
Environment Information Strength
5	Recycling. The firm either is a substantial user of recycled materials as raw materials in its manufacturing processes, or a major factor in the recycling industry.
6	Pollution Prevention. Prevention programs (e.g., emissions reductions)
7	Communications
Diversity Information Concern
8	Non-Representation
Employee Relations Information Strength
9	No-Layoff Policy. The firm has maintained a consistent no-layoff Policy.
10	Health and Safety Strength. The firm has strong health and safety programs.
11	Retirement Benefits. The firm has retirement benefits program.
12	Training employee programs.
Product Information Strength
13	Quality. The firm has program to improve quality and safety (e.g., comply with ISO standard)
14	R&D/Innovation. The firm is a leader in its industry for research and development (R&D), particularly by bringing notably innovative products to market.

Cai, Y., Jo, H., & Pan, C. (2011). Vice or Virtue? The impact of corporate social responsibility on executive compensation. Journal of Business Ethics, 104, 159–173. https://doi.org/10.1007/s10551-011-0909-7

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Karim, K., Lee, E., & Suh, S. (2018). Corporate social responsibility and CEO compensation structure. Advances in Accounting, 40, 27. https://doi.org/10.1016/j.adiac.2017.11.002

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