Do Old Board Directors Promote Corporate Social Responsibility?

Abstract

This study investigates the influence of old directors on corporate social responsibility (CSR) using roughly 25,000 firm-year observations from 2001 to 2015 in the United States. We employ the widely used selection, optimization, and compensation (SOC) model from psychology to explain the CSR decisions of old directors. Our results indicate that firms with a higher percentage of old directors tend to have lower engagement in CSR activities. To address endogeneity, we adopt the difference-in-differences method and use the event of sudden deaths and unexpected retirements of old directors and find that our results remain robust. Our analysis also reveals that the negative impact of old directors on CSR is more significant in firms where directors receive fewer reputational spillover benefits from CSR initiatives and/or firms exhibiting poor corporate governance. In addition, this adverse impact of old directors comes from two effects: a reduction in efforts to enhance CSR strengths and an increase in inaction to address CSR concerns. Overall, these findings suggest that the CSR decision-making process of old directors involves assessing the costs and benefits of CSR engagements, consistent with our hypothesis derived from the SOC model.

Introduction

In recent years, the issue of companies deciding whether to engage in corporate social responsibility (CSR) activities has received widespread attention.¹ Researchers investigate the influence of director demographic attributes, such as director age, gender, ethnicity, experience, tenure, and educational level.² Most of these papers suggest that diversity of board composition has a positive association with CSR because the diversity resulting from idiosyncratic director characteristics can improve linkages with stakeholders and enhance sensitivity to social concerns. In addition, several studies explore the impact of board structural characteristics such as board size, director independence, director shareholding, and board leadership duality, on CSR based on agency theory.³ Accordingly, board composition is an important determinant of a firm’s CSR activities.

Over the past two decades, there has been a significant increase in the number of old directors on corporate boards in the United States. As the baby boomer generation reaches retirement age, many of them choose to remain on corporate boards, leading to aging of board directors. According to a 2018 report by PricewaterhouseCoopers, the average age of independent directors on S&P 500 boards rose from 61 in 2007 to 63 in 2017. The same report notes that only 6% of board seats in the S&P 500 are occupied by directors under the age of 50, suggesting that younger voices may not be adequately represented in corporate decision-making. In addition, the S&P 500 Board Trends in 2019 reports that “…71% of S&P 500 boards disclose a mandatory retirement age for directors, and 46% of those set the age at 75 or older, compared to 44% the last year and just 15% a decade ago.”⁴ This structural shift in aging boards appears to impact corporate decision-making. For example, Masulis et al. (2017) suggest that directors over 65 have lower incentives to monitor managers.⁵ Therefore, the significant trend toward aging boards may have a crucial impact on CSR activities.

The existing literature on the impact of director age on CSR activities does not pay special attention to board aging, has no consistent findings, and lacks a clear theoretical framework. First, Beji et al. (2021) and Ferrero-Ferrero et al. (2015) suggest that age diversity of directors on boards has a positive impact on CSR activities. However, the lower age diversity resulting from a higher proportion of older directors or a higher proportion of younger directors may lead to the same outcome, namely a decrease in CSR engagement. Specifically, they do not distinguish between the effects of different age groups of directors and thereby do not explicitly focus on the impact of board aging trends. Second, Hafsi and Turgut (2013) find a negative effect of age diversity on CSR, while Beji et al. (2021) and Ferrero-Ferrero et al. (2015) confirm a positive relationship. Post et al. (2011) find a curvilinear relation between age and CSR. The lack of consistent empirical results suggests the need for more rigorous empirical methods. Third, in addition to the concept of board diversity, some previous studies such as Post et al. (2011) view age as one demographic attribute and do not provide a specific theory to explain how the aging directors affect CSR activities.

Therefore, given the significant impact of directors on CSR, the trend of aging boards, inconsistent research findings, and the lack of clear theoretical explanations from previous studies, we propose a rigorous investigation of the impact of older directors on CSR. This will involve constructing a sound theoretical framework, using more robust empirical methods, and conducting thorough checks to ensure the reliability of our findings.

In this study, we apply the selection, optimization, and compensation (SOC) model, developed by Baltes and Baltes (1990) and widely used to analyze the impact of aging on decision-making, to predict the CSR decision-making of old directors.⁶ The SOC model suggests that human decision-making is a function of maximizing objectives, which are achieved through three key processes: selecting valuable goals (selection), optimizing resources (optimization), and compensating for resource losses (compensation). The underlying concept of the SOC model, the gain-to-loss ratio decreases with age because resources are depleted with age. As a result, older adults with more limited resources tend to be more cautious in considering and evaluating their goals than younger adults. Our analysis of the three processes using the SOC model is as follows.

First, old directors select to maximize personal wealth. Following scholarly studies such as Stiglitz et al. (2009), Bourdieu (2018), and Diener and Biswas-Diener (2002), the personal wealth of old directors includes economic wealth such as income and assets and non-economic wealth such as social and emotional relationships, health, leisure, and hobbies. CSR decision-making is the work domain of old directors and affects their economic-related wealth. Second, old directors have fewer resources (such as cognitive ability) and shorter future careers than young directors, making them more cautious in assessing the benefits and costs of their participation in CSR. Specifically, supervising managers to engage in CSR often incurs costs, which old directors may view as a burden, while young directors may view it as an investment with future returns. CSR usually requires continuous and long-term investment, often making its potential benefits to be realized in the distant future. The long-term nature of CSR benefits may make old directors, who have shorter future board tenures, less concerned about the sustainable benefits of CSR than younger directors. Therefore, by weighing the benefits and costs of CSR, the optimal decision for older directors is to reduce CSR participation. Third, fewer resources such as age-related cognitive decline make old directors less able to engage in CSR. They thus increase non-economic activities to pursue non-economic wealth (such as emotional relationships, socializing, and leisure) to compensate for the losses from their fewer resources. Therefore, through the analysis of these three processes of the SOC model, we predict a negative impact of older directors on CSR engagement.

To test our prediction based on the SOC model, we investigate the impact of older directors on CSR using CSR-related data drawn from the MSCI ESG Ratings (formerly KLD) database for U.S. listed firms from 2001 to 2015. By running an ordinary least squares (OLS) regression, we find that the firms with a high percentage of old directors have lower CSR, which tends to support the SOC hypothesis. However, direct investigation of the impact of old directors on CSR may suffer from endogeneity issues. For example, it is possible that certain omitted variables such as firm, industry, board characteristics and unobservable variables (e.g., corporate culture and tradition) may simultaneously influence the employment of old directors and CSR decisions. To prevent endogeneity concerns, we follow the literature and treat sudden deaths and unexpected retirement as an exogenous shock.⁷ In addition, we use the propensity score matching (PSM) and difference-in-difference (DID) approaches to address endogeneity issues. The DID regressions show that CSR activities increase when the percentage of old directors decreases after an exogenous shock, consistent with the OLS results. Economically, compared with PSM matched firms, a firm whose old director leaves the firm increases its adjusted CSR score about 15% relative to the standard deviation of adjusted CSR score after the exogenous shock. In addition, after we consider that the results may be contaminated by specific samples and adopt different methods and measures, we still obtain empirical results similar to our original findings that support the SOC theory.⁸

To confirm whether our results support the predictions of the SOC model, we further investigate whether the negative impact of old directors on CSR activities is the result of weighing CSR benefits and CSR costs. We use several scenarios that affect the CSR benefits and costs of old directors as proxy variables for CSR benefits and costs. First, we use busy boards and boards with high achievement as scenarios for corporate reputation, which can be viewed as the effect of CSR benefits. Under the concept of the SOC model, old directors with less time and resources have a lower profit-to-cost ratio in CSR engagements than young directors. Compared with young directors, old directors have less incentive to improve their reputation by participating in CSR when the firm already has a good reputation. We find that CSR increases after old directors leave good reputation firms, implying that the fewer benefits from additional reputation lead to lower incentives for old directors to engage in CSR. In addition, for CSR costs, we use a scenario involving poor corporate governance due to low institutional ownership and corporate blank-check preferred stock. Serving in a firm with poor corporate governance increases the costs for directors to monitor managers’ participation in CSR. Old directors are more sensitive to the cost of engaging in CSR than young directors, which reduces their motivation to engage in CSR in firms with poor corporate governance. This prediction is confirmed by the results of increased CSR after old directors leave firms with poor governance. Thus, these findings related to CSR benefits and CSR costs support our hypothesis in the SOC model.

Finally, we examine the influence of older directors on CSR strength scores (good activity benefits CSR) and CSR concern scores (bad activity hurts CSR) because studies such as Goss and Roberts (2011) suggest that investing in activities that address CSR concerns is more costly or less profitable than engaging in activities that increase CSR strength. We find that old directors decrease activity in developing CSR strengths and increase inaction to solve CSR concerns. After old directors leave boards, boards prioritize good actions to strengthen their CSR performance instead of addressing CSR concerns. The findings of CSR strengths and CSR concerns also confirm that the CSR decision-making is the result of weighing CSR benefits and CSR costs in the SOC model.

Overall, our research exploring the effects of director age on CSR participation has several important implications. First, the CSR decisions of aging directors in corporate finance can be explained by the SOC model. Specifically, shorter future board tenure and fewer resources may lead older directors to be less involved in CSR activities because these activities may benefit them in the long term but incur costs in the short term. Second, our study focuses on the increasing trend of director aging over the past two decades and explores the influence of this phenomenon on CSR activities. Unlike age diversity research, which does not identify the specific age groups affecting CSR decisions, our study directly examines CSR engagement among older directors, particularly those aged 65 and above. This approach helps understand the core reasons behind age effects. Third, our results suggest that CSR activity may be worsened by the increasing trend of board aging. To address this negative impact, the government could implement regulations regarding the age of directors. In addition, the implementation of “shadow committees” or “reverse mentoring schemes” may help the younger generation to become more involved in the decision-making process.

Model and Hypothesis

Though studies examine the impact of director age on CSR, there is a lack of cohesive argument in their hypothesis development. What is the process that drives an old director to make a CSR decision? This can be explained by the effect of age on work attitudes and behaviors, which is widely explored in organizational psychology. To link director aging and CSR, we adopt the most relevant theory in this field: the selection, optimization, and compensation model (SOC), to predict old director decision behavior.

Selection, Optimization, and Compensation (SOC) Model

The SOC model, developed by Baltes and Baltes (1990), outlines three major processes for successful aging to predict human decision-making under age-related changes in resource availability. Selection refers to the process of setting and choosing goals in response to the available resources. There are two types of selection: “elective selection,” which involves voluntarily prioritizing goals based on personal interests and preferences, and “loss-based selection,” which involves abandoning goals that are no longer feasible. Optimization refers to the means or process of allocating resources in order to achieve desired goals in selected domains. By optimizing resources, individuals are better equipped to overcome challenges and achieve their goals. Compensation refers to the process of using alternative means to achieve goals when internal or external resources are limited or depleted. By compensating for limitations, individuals are able to maintain a desired level of functioning.

The SOC model illustrates the aging process and how individuals can adapt to age-related changes. The assumptions and crucial associated implications of SOC about decision process include (1) the SOC model assumes that individuals have limited internal and external resources, and that these resources change over time. As individuals age, resources may become depleted or less effective, requiring adaptation. Thus, the naturally diminished resources that come with aging prompt the elderly to pay more attention to select a few valuable goals; (2) the SOC model indicates that successful aging involves a balance between maximizing the gains associated with available resources and minimizing the losses associated with age-related changes; and (3) the SOC model argues that as individuals age, their resources gradually deplete, leading them to prioritize the losses of resource depletion over the benefits of resource utilization. As a result, Baltes et al. (1999) suggest that older adults devote more resources to maintaining function and preventing loss than to gaining growth.

Research Setting by Applying the SOC Model

As a theoretical model, the SOC model does not prescribe specific goals or criteria. Thus, the SOC framework is not limited to successful aging but can be applied to a variety of domains and phases of the life cycle (e.g., Baltes & Carstensen, 1996; Baltes & Dickson, 2001). Accordingly, we adopt SOC model to predict the CSR decision-making of old directors by addressing these three processes. In order to make scientific inferences, we make three assumptions which are consistent with the SOC model. First, we adopt the basic axiom of economics and assume that any decision of an individual is based on the “self-interest” motivation. The meaning of “self-interest” is “everyone will strive for the best interest for themselves under limited resources.” Second, we assume that humans are inherently goal-oriented and tend to behave in ways that achieve goals. Third, we assume that the process of selecting which goals to pursue is a necessary step before taking action.

Selection

Selection is the process of setting and developing goals for individuals in response to their available resources. To simplify the analysis, we take the maximization of personal wealth, which is the most original and widely accepted objective in economics, as the goal for old directors in deciding whether to perform CSR.⁹ In general, human activities include two major categories: economic activities and non-economic activities (e.g., Mehta & Awasthi, 2019; Subanti et al., 2021; Yount et al., 2014). An economic activity is defined as any human endeavor undertaken in exchange for monetary compensation or equivalent value. For example, laborers engage in factory work to earn wages. Non-economic activities are those that are driven by motivations unrelated to monetary gain and are performed for social or psychological reasons or for qualify of life, such as social and emotional relationships, or leisure.¹⁰ Therefore, based on whether human activities generate monetary gains, personal wealth goals can be divided into two broad categories: economic wealth related to economic activities, and non-economic wealth related to non-economic activities.

In our study, directors can use their resources such as time and energy to engage in CSR activities and/or other activities. First, whether directors supervise or engage in CSR falls within their scope of work. CSR involvement can enhance a firm’s reputation, which may lead to better financial performance and greater stakeholder support. Sprinkle and Maines (2010) posit that the benefits of CSR include increased firm reputation and customer loyalty, improved employee motivation, and potential financial benefits. Hemingway and Maclagan (2004) and Yu et al. (2018) suggest that the good reputation of a firm resulting from CSR activities can be used by directors to create personal reputations for their future career prospects. Improved personal reputation and future career prospects help increase directors’ job income, which can be measured in monetary value. In addition, CSR activities are corporate decisions, and corporate decisions do not directly affect directors’ emotional relationships and personal leisure. Therefore, directors’ CSR decisions are economic activities and directly affect only economic wealth. In addition to working on CSR activities, directors can devote resources to other activities that are not work-related.¹¹ In order to simplify the analysis, we regard non-economic activities such as social interaction, emotional relationship, and leisure outside the director’s work scope as options for other activities in which resources can be used. These activities fail to generate any monetary value that can be exchanged in the market, thereby affecting the non-economic wealth.

Therefore, directors select maximization of their personal wealth. The selection goal of directors is shown as follows.

Max Personal wealth, where Personal wealth includes Economic wealth and Non-economic wealth; Economic wealth = f(Economic activities such as CSR activity); Non-economic wealth = g(Non-economic activities such as emotional relationships, leisure, health…).

Optimization

Optimization is the means or process by which old directors allocate their resources in order to maximize their personal wealth. Motivated by self-interest, old directors are motivated to engage in an activity when the benefits of this activity are more favorable than its related costs. Thus, we consider the benefits and costs of CSR activities as follows. Compared with young directors, old directors are more vulnerable to the costs of CSR because they have fewer resources such as cognitive ability and shorter future tenure on the board. First, since knowledge related to CSR is complex and constantly updated over time, old directors may face greater difficulty in learning it than young directors. Furthermore, socioemotional selectivity theory (SST) suggests that old adults have less motivation to learn new information that is future-oriented (Carstensen, 1995, 2006; Carstensen et al., 1999). Therefore, the cognitive decline of older directors makes it more costly for them to supervise managers using new CSR-related knowledge than younger directors.

In addition, we consider the influence of the timing of CSR costs and CSR benefits. Orlitzky et al. (2003) find that firms that invest in CSR activities initially experience short-term costs, but eventually achieve long-term economic benefits such as increased sales, improved reputation, and employee loyalty. Jiang et al. (2016) argue that old directors lack the motivation to develop their reputation due to their shorter future careers, whereas reputation is one of the benefits of directors engaging in CSR. Wang and Bansal (2012) show that the advantages and positive financial performance derived from CSR activities emerge as long-term results. Thus, for firms and directors, engaging in CSR burns cash initially, but may yield potential benefits in the long run. The long-term nature of CSR benefits may make old directors, who have shorter future careers, less concerned about the sustainable benefits of CSR than younger directors.

From the time perspective, several studies such as Carstensen et al. (1999) and Carstensen (2006) observe that older adults tend to focus more on present-oriented goals, while younger adults tend to prioritize future-oriented goals. Older adults tend to perceive time as more limited and therefore prioritize goals that can be accomplished in the present. By contrast, younger adults often have a longer time horizon and can afford to focus on longer-term goals. The prioritization of goal driven by limited time resources leads old directors to be more concerned with the immediate costs of CSR than with the potential future benefits of CSR.

The above analysis suggests that old directors are more sensitive to CSR costs and less sensitive to CSR benefits than young directors. They are less motivated to engage in CSR based on CSR benefits but are more motivated to be unwilling to engage in CSR based on CSR costs. Therefore, given that older directors have fewer available resources than younger directors, and considering the costs and benefits of CSR in order to maximize personal wealth, the optimal decision for old directors is to reduce their participation in CSR activities.

Compensation

Compensation is the process and means by which old directors maintain their personal wealth under the constraints of limited time and/or declining cognition. Old directors face greater depletion of resources than young directors. For example, old directors have fewer resource such as cognition decline. Studies such as Ballesteros et al. (2013) argue that old adults may experience declines in working memory, attention, and processing speed, which can make it more challenging to learn and adapt to new information.¹² CSR knowledge is more complex, making it more difficult for old directors to engage in CSR activities than non-economic activities. Due to fewer resources such as cognitive decline and memory impairment, older directors are less able to participate in CSR activities than their younger counterparties. Therefore, old directors seek alternative means, namely, non-economic activities, in order to compensate for the losses caused by reduced resources.

First, non-economic wealth such as emotional relationships can be used to make up for the loss of resources, as posited by the well-known life-span theory, SST. Under SST, old adults who perceive that they have only limited time left become more selective about how they spend their time and with whom they maintain relationships. SST also suggests that the pursuit of emotionally satisfying interactions can be achieved in the present moment and identifies emotional relationships as a present-oriented goal. Accordingly, old adults are more concerned with emotionally important relationships and goals related to emotion regulation. This is also supported by Charles and Carstensen (2008), who show that old adults are more likely than young adults to employ emotion regulation strategies to cope with stress and unpleasant situations, given the beneficial effects of such strategies on physical and mental health.

In addition, several studies emphasize that non-economic wealth such as social interaction, health, and leisure, is a crucial target for old adults. For example, Litwin and Shiovitz-Ezra (2006) show that social and cultural activities have a significant impact on the well-being of older adults, while work activities have a relatively weak effect. Gagliardi et al. (2007) discover that participation in outdoor activities and leisure activities can help old adults improve their quality of life and social participation. Lu (2011) finds that these leisure experiences have a positive impact on the physical and mental health and well-being of older adults, helping them reduce depressive symptoms and improving their quality of life.

The preceding literature indirectly suggests that older adults tend to prioritize non-economic wealth when they face depleted resources. With fewer resources such as cognitive decline, older directors may find it challenging to engage in CSR activities, unlike their younger counterparts. Therefore, reduced resources lead to a decline in the ability of older directors to engage in CSR, forcing them to seek non-economic activities to maintain their personal wealth.

Our Hypothesis Based the SOC Model

To help understand our proposition, Fig. 1 shows how old directors make CSR decisions under the SOC model. We explain Fig. 1 and describe the sequence of decision-making below.

Fig. 1

CSR decision-making of old directors under the SOC model

First stage: Old directors set the goal in response to their available resources in the selection process. Specifically, old directors set the maximization of personal wealth as their goal, where personal wealth includes economic and non-economic wealth. Whether directors engage in CSR fall within their scope of work and affect their job income, which influences their economic wealth. Non-economic activities such as social and emotional relationships and leisure are forms of non-economic wealth.¹³

Second stage: Old directors consider how to allocate their resources to economic and non-economic activities to achieve the goal. When old directors think about resource allocation issues, they instinctively think not only about using resources to maximize personal wealth (i.e., the optimization process), but also about maintaining personal wealth under the constraints of limited resources (i.e., the compensation process). Thus, in the second stage, the decision-making procedure of old directors involves simultaneously optimization and compensation processes.¹⁴ In the optimization process, old directors have less incentive to engage in CSR activities because the benefits of CSR are less favorable than the related costs. In the compensation process, a reduction in resources such as age-related cognitive decline diminishes the capacity of old directors to engage in CSR, causing them to turn to non-economic activities to compensate for losses from their reduced resources.

Third stage: After careful consideration based on the optimization and compensation processes, old directors will decide to reduce CSR activities because prioritizing non-economic activities over CSR activities helps achieve their goal. Therefore, whether considering the “capacity” or looking at the “motivation” of old directors, old directors will decide to reduce CSR activities. In this final stage, old directors finish their strategies to maximize their personal wealth.

Therefore, we construct the following hypothesis to predict CSR decision-making based on the SOC model.

Hypothesis

If the SOC model can be applied to predict the behavior of old directors, in order to achieve the selecting goal of maximizing personal wealth, through the optimizing means of CSR cost–benefit assessment and by compensating means of the resource losses, old directors reduce to engage in CSR activities.

Data and Methodology

Data

To test our hypothesis based on the SOC model, we use the U.S. listed firms to investigate the impact of older directors on CSR from 2001 to 2015. We collect CSR data from the MSCI ESG Ratings (formerly KLD) database as it is widely used in CSR papers. The sample in this study covers the period from 2001 to 2015, since more comprehensive coverage of CSR begins in 2001. Information on firm financial characteristics is collected from the CRSP and the Compustat database. Data on boards of directors such as CEO duality, director’s age, percentage of old directors, board size, and board independence are drawn from the MSCI ESG Governance Metrics database. Institutional Ownership is calculated using data obtained from the Thomson-Reuters Institutional Holdings (13F) Database. The information of directors’ achievement/rewards is sourced from the BroadEx database. The variables for corporate governance are captured from the ISS (formerly RiskMetrics) database. We exclude observations having negative total assets or negative book equity from the sample. The final sample contains about 25,000 firm-year observations spanning 2001 to 2015.

In order to address endogeneity issues, we treat the sudden death and unexpected retirement events of old directors as exogenous shocks. For these events to be considered valid exogenous shocks, their departure must be due to personal factors such as health problems or accidents, rather than corporate decisions. We use the following procedure to collect these events. First, we use the list of directors aged 65 and older on the board in a given year from MSCI to identify who leaves the board in the following year. We then conduct manual searches through Google, LexisNexis, and the Wall Street Journal to obtain the reasons for the sudden departure of old directors. We consider events where departures are due to personal factors, such as health issues or unfortunate accidents, as exogenous shocks. The above method of collecting events ensures that old directors are not forced to resign due to corporate decisions, thereby ensuring that these events are exogenous.

CSR Measures

We use the MSCI ESG Ratings (formerly KLD) database to measure the firm’s CSR performance.¹⁵ Following previous studies, we use CSR ratings in six dimensions (categories): community, diversity, employee relations, environment, human rights, and product quality and safety.¹⁶ Each dimension is composed of strength (good activity benefits CSR) and concern indicators (bad activity harms CSR). The firm scores one point if it performs the activity listed in an indicator, otherwise its score is zero. The CSR score of a firm for each dimension is the strength score minus the concern score. However, comparing raw CSR scores across time and dimensions may result in biased results because the number of CSR indicators in each dimension varies greatly over time (Manescu, 2009).

To overcome this problem, we adopt adjusted CSR to ensure that CSR measures are comparable over time. First, we follow Deng et al. (2013) and use adjusted CSR for a firm in each year. Specifically, for each dimension in each year, we divide the strength score and the concern score by its respective number of strength and concern indicators as the adjusted strength and adjusted concern score. Then, we sum the adjusted strength (concern) scores of the six dimensions as the total adjusted strength (concern) score. The adjusted CSR score is constructed by subtracting the total adjusted concern score from the total adjusted strength score.¹⁷

The Percentage of Old Directors and Control Variables

We follow previous studies and define a director as old if he or she is at least 65 years old. Masulis et al. (2017) propose that 65 is a relevant age for determining old directors based on the argument of Jenter and Lewellen (2015) that a significant proportion of workers retire at the age of 65. Bargeron et al. (2017) and Fich et al. (2013) also set 65 years of age as the retirement age. Brick et al. (2006) and Dewally and Peck (2010) suggest that people over 65 have different motivations for decision-making. Accordingly, we conjecture that directors over 65 may also have different views about CSR input and define directors aged or over 65 as old directors. To prevent bias caused by different board sizes, we adopt the percentage of old directors (i.e., the ratio of old directors to total directors) to capture the influence of old directors.¹⁸

For the control variables, we follow Withisuphakorn and Jiraporn (2016), Deng et al. (2013), Di Giuli and Kostovetsky (2014) and Padgett and Galan (2010) and incorporate firm characteristics such as firm age, firm size (natural logarithm of total assets), Tobin’s Q, cash to assets, return on assets (ROA), KZ index, and R&D intensity. In addition, we consider the influence of industry and incorporate the HH index (Herfindahl-Hirshan index) and industry fixed effect into the regression. Finally, since previous studies argue that board-related variables have critical effects on CSR decisions, we follow Cheng and Courtenay (2006) and Jizi et al. (2013) and use CEO duality, board size, and board independence to represent board influence. Detailed definitions for all variables are given in see Appendix Table 8.

Identification Strategies

The significant impact of old directors on a firm’s CSR activities may be the result of endogeneity. To mitigate these endogeneity concerns, we follow the literature (Chang & Wu, 2021; Nguyen & Nielsen, 2010; Salas, 2010; and Falato et al., 2014) and use sudden deaths and unexpected retirement as an exogenous shock because the removal of an old director in these cases is not attributable to the decisions made by the firm. This exogenous shock is also not related to CSR activities and directly lowers the proportion of old directors in firms.¹⁹ Therefore, the sample of old directors after this quasi-natural experiment is free of endogeneity.

We adopt propensity score matching (PSM) and difference-in-difference (DID) approaches to deal with the endogeneity problem. To address endogeneity, we treat firms that experience exogenous shocks, defined as the sudden death and unexpected retirement of old directors, as treated firms. Next, we identify suitable matched firms which have characteristics similar to the treated firms, but do not have an exogenous shock of old directors leaving, and then compare the difference in CSR between these two groups. First, we follow Rosenbaum and Rubin (1983) and Caliendo and Kopeinig (2008) to use PSM for finding appropriate matched firms.²⁰ Based on the propensity scores, we apply the nearest neighbor and radius matching methods to find the matched firms. To consider the substantial difference in sample size between treated firms and matched (untreated) firms, we choose five matched firms for each treated firm.

Second, we use a DID regression to examine the difference in CSR between treated firms and matched firms. The DID regression addresses the endogeneity problem because it estimates the influence of the exogenous shock, which tends to lower the percentage of old directors in treated firms after the event, on the CSR.²¹ We run the DID regression using a sample that includes the 4 years surrounding the shocks (from year -2 to year + 2) and excluding the event year (year 0). The DID regression is

$$Y_{i,t} = \alpha_0 + \beta \cdot Treat_i + \delta \cdot Post_t + \gamma \cdot Treat_i \times Post_t + \pi \cdot Control\;variables_{i,t} + Industry\; effect + Year\;effect + \varepsilon_{i,t}$$

(1)

where ${Y}_{i,t}$ denotes the adjusted CSR of firm i in year t; ${Post}_{t}=1$ if the year is after the event year and 0 otherwise; ${Treat}_{i}=1$ if the firm is a treated firm which has a sudden death and/or unexpected retirement of an old director, and 0 otherwise.²² The coefficient $\gamma$ of interaction term ${{Treat}_{i}\times Post}_{t}$ is used to test whether old directors influence CSR activities since the percentage of old directors is affected by the exogenous shock. If the old directors have less incentive to engage in CSR activities, $\gamma$ will be significantly positive.

Summary Statistics

Table 1 shows the descriptive statistics of variables. Panel A presents the mean of all variables over time from 2001 to 2015. On average, firms in the sample have a negative adjusted CSR score, indicating that CSR strength is less than CSR concern. This result is consistent with earlier papers using the MSCI ESG Ratings (formerly KLD) database to estimate CSR activities (Deng et al., 2013; Di Giuli & Kostovetsky, 2014).²³ Most importantly, the average director age has risen steadily from 59.16 during 2001–2003 to 62.33 during 2013–2015. The percentage of old directors also gradually increases over time. This continual rise in the director age and the percentage of old directors is consistent with the S&P 500 trend report of 2019. This result also shows that the important role of director aging in firm decision-making should be further explored.

Table 1 Summary statistics and sample distribution

Panel B presents the mean of related CSR measures, board of director measures, firm size, and firm age in different industries based on the Fama–French 12 industry classification. First, this panel shows that industries vary in their CSR activities and their proportion of old directors. Firms belonging to the energy industry have the lowest level of CSR activities, while the business equipment industry related to computer, software, and electronic equipment has the highest level of CSR activities. In age of directors, the number of old directors, and the proportion of old directors, the utility industry scores the highest, while the business equipment industry scores the lowest. It is interesting that the business equipment industry is the highest in CSR activities but the lowest in old directors. Thus, a quick glance at this panel reveals a negative relationship between old directors and CSR activities.

Impact of Old Directors on CSR Activities

Results of the OLS Regressions

Table 2 shows that OLS regression for the impact of old directors on CSR activities.²⁴ First, the coefficients of % of old directors are significantly negative, indicating the negative effect of old directors on CSR activities.²⁵ This result tends to support our hypothesis based on the SOC model that older directors are less inclined to pursue economic wealth by monitoring the CSR engagement of managers, possibly because their shorter future board tenure and fewer resources may lead them to care more about the costs than the benefits of CSR engagement. Second, interestingly, we find a positive impact of firm age on CSR while we find a negative influence of director age on CSR. This positive effect of firm age on CSR is consistent with Withisuphakorn and Jiraporn (2016), who find that old (or mature) firms can afford to spend more CSR since they have stable cash flow and performance.²⁶ Although old firms tend to have more old directors, the significant differences between old directors and old firms in making CSR decisions show that they have very different motivations for engaging in CSR.

Table 2 Ordinary Least Squared (OLS) Regression Analysis

The effects of other variables on CSR are as follows. First, we find that large firms tend to have high levels of CSR activities, which is consistent with Di Giuli and Kostovetsky (2014), who show that larger firms tend to be more concerned about their reputation and can better afford the cost of CSR than smaller firms. Second, the coefficients of Tobin’s Q, cash to assets, and ROA are significantly positive, indicating that firms with high value, high cash, and high profit engage in CSR investments. This finding is consistent with the argument of Hong and Kacperczyk (2009) that less financially constrained firms have higher CSR because CSR is costly but CSR benefits are finite. Third, the positive influence of R&D intensity on CSR is consistent with the argument of Padgett and Galan (2010) and McWilliams and Siegel (2000) that R&D intensive firms increase CSR because of their new and improved processes and products. In addition, the results of HH index indicate that firms in more competitive industries are more likely to increase CSR.

Finally, we find significantly positive coefficients of board size and board independence. This result is consistent with Jizi et al. (2013). These results indicate that a higher proportion of independent directors appears to have greater ability to influence firms to conduct CSR. In addition, firms with large board sizes have higher management control over CSR activities because the workload of their individual members is lower and their diversified expertise is greater than firms with small board size.

Results of the Quasi-Natural Experiment

Before performing the DID regressions, we must check whether the firms selected by PSM are suitable matched firms for the treated firms. We check whether the characteristics and the trends in adjusted CSR between treated firms and matched firms before the sudden deaths and retirements of old directors are similar. Our untabulated results show that in this scenario of control firms, there is no significant difference between control firms and treated firms. In addition, adjusted CSR between the two groups and the change in adjusted CSR between the two groups are not significantly different before the shock. Further, we also regress the adjusted CSR on the dummies of year 0, year -1, year -2, and the interaction terms between the treated dummy and the year dummies. The untabulated results show that the interaction terms are not significant. Therefore, the control firms selected in our paper fit the general requirements for matched firms.

Table 3 shows the result of DID regressions. Model 1 does not control for other variables.²⁷ The Model 2 considers the heterogeneous dynamic influence of other control variables on both groups.²⁸ The coefficients of the interaction term,${{Treat}_{i}\times Post}_{t}$, in these two models are significantly positive. This finding indicates that treated firms, which have a lower percentage of old directors after the sudden exit of old directors, have higher CSR activities than control firms. This implies that firms with a lower percentage of old directors engage in more CSR investment. Compared with PSM matched firms, the treated firm economically increases its adjusted CSR score about 15% relative to the standard deviation of the adjusted CSR score after the exogenous shock.²⁹ Therefore, the results of the DID regression also support the SOC model and are consistent with the OLS regression, showing a negative impact of old directors on CSR activities.

Table 3 Difference-in-differences regression (DID) analysis

Mechanisms Through Which Old Directors are Less Motivated to Engage in CSR

This section further examines whether old directors’ lower motivations for CSR activities are the result of weighing CSR benefits and CSR costs under the SOC framework. First, we indirectly use scenarios that affect the CSR benefits and costs of old directors as proxy variables because there are no data on the benefits and costs of director’s participation in CSR. Second, we examine the influence on CSR strength scores and CSR concern scores because these two types of activities have different costs and benefits of participation.

The CSR Benefits from Reputation

Regarding the influence of CSR benefit, we consider the scenario of corporate reputation because the reputation image of the firm can spill over to the personal reputation of directors, which in turn affects the incentives of directors to establish personal reputation. Specifically, we use busy boards or high-achieving boards as scenarios for firm reputation, because Elyasiani and Zhang (2015) and Ferris et al. (2003) suggest that busy directors can bring reputation to firms due to their extensive experience. Intuitively, when the firm already has a good reputation, the effect of the directors hoping to improve the additional reputation through CSR participation will be limited.³⁰ Therefore, the more limited reputation improvement gained through CSR engagement in firms with stronger reputations results in older directors, who have shorter remaining careers, being less motivated than their younger counterparts to adopt CSR activities in firms with stronger reputations.³¹

Table 4 uses a subsample analysis of DID by dividing the sample into directors serving on boards with good or poor reputation to examine the actions of old directors. The detailed definitions of the subsample by reputation influence are as follows. First, busy director status is defined by number of boards the firm’s directors serve on divided by the firm’s number of directors. If this ratio is higher than the median of all firms’ ratios, the firm belongs to the “busy boards” group, otherwise it is placed in the “non-busy boards” group. Second, we collect the achievement data of directors from the BoardEx database and calculate the number of achievements of directors in a firm for each year. If the number of achievements is greater than the median of all firm’s achievements, the firm is a high achievement firm, otherwise it is regarded as a low achievement firm.

Table 4 DID results: the role of reputation

Table 4 shows the coefficients of Treat × Post are significantly positive for firms with busy boards and firms with high achievement directors. The significantly positive coefficients of the interaction term indicate greater increase in CSR activities for these two types of firms after the exit of old directors. These findings in Table 4 are consistent with our prediction based on the SOC model that CSR benefits motivate old directors less than young directors.

The CSR Costs from Corporate Governance

This section examines the impact of CSR costs on decision-making using the scenario of corporate governance within firms as CSR costs. In general, firms with poor corporate governance cannot allow directors to effectively supervise managers to engage in what they are supposed to do because of imperfect mechanisms. Studies such as Gillan (2006) and He and Ho (2011) suggest that monitoring managers is more costly when the firms suffers from poor corporate governance. Compared with young directors, old directors have a shorter future career serving on boards and face cognitive decline, making them more sensitive to the costs of engaging in CSR. Therefore, based on our inference about the optimization process in the SOC model, the higher monitoring costs of CSR in a firm with poor corporate governance reduce the incentives of older directors to engage in CSR activities.

To test our prediction on the impact of CSR costs, we consider the following two types of firms with poor corporate governance. First, we focus on the firms with low institutional ownership, since Liu et al. (2020) suggest that institutional investors can use board meetings and appoint directors to monitor the firm.³² Firms with fewer institutional investors are less able to assist directors to urge managers to engage in CSR, thereby increasing directors’ monitoring costs. Second, we consider the state of corporate governance as signaled by blank-check preferredstocks, which are authorized by the board of directors to determine the terms and conditions of issuance without requiring shareholder approval. Ambrose and Megginson (1992) argue that the use of blank-check preferred stock reduces the probability of the firm becoming an acquisition target because it may be assigned a very high liquidation value, and must be redeemed when control changes, or it may have very large super voting rights. This takeover defense of blank-check preferred stock increases monitoring costs because it makes manager less worried about being replaced if they do not engage in CSR activities.

Table 5 uses subsample analysis of DID by dividing sample into good and poor corporate governance to examine the influence of corporate governance. The detailed definitions of Table 5 are as follows. Panel A displays the DID results for firms with high and low institutional ownership. The institutional ownership is the ratio of a firm’s aggregated institutional shares to its total outstanding shares. We use the median of all firms’ institutional ownerships in each year to divide the sample into two groups: the high (low) institutional ownership firm whose institutional ownership is greater (lower) than the median. Panel B displays the DID results for firms with or without authorization to issue blank-check preferred stocks.

Table 5 DID results: the role of corporate governance

Table 5 shows that the coefficients of the interaction term are significantly positive for firms with low institutional ownership and firms with blank-check preferred stock. The increase in CSR activities for these two types of firms after the exit of old directors implies that old directors serving in firms with poor corporate governance decrease CSR involvement. Using the poor corporate governance as a scenario of high monitoring costs, the results of Table 5 are consistent with our prediction of SOC model that older directors are more concerned about the costs of CSR than young directors.

In sum, old directors are less motivated to engage in CSR in firms in which directors receive fewer reputational benefits and/or firms with poor corporate governance due to the lower benefits of CSR and/or the higher costs of CSR. These findings are consistent with the optimization process of weighing CSR benefits and costs in the SOC model.

CSR Strengths and CSR Concerns

This section further examines the results from CSR strengths (good activities benefit CSR) and CSR concerns (bad activities harm CSR), respectively, because these two types of activities have different costs and benefits of participation. The database of CSR shows that the issue of CSR strength is very different from the issue of CSR concern. In addition, Lougee and Wallance (2008) and Goss and Roberts (2011) suggest that investing in activities to improve CSR concerns would be more costly or less profitable than engaging in activities to increase CSR strength.³³ Therefore, examining CSR engagements using CSR strength and CSR concern helps to validate the prediction of optimization process in our model.

Table 6 presents the results of CSR strengths and concerns, where we use the total adjusted CSR strength scores and total adjusted CSR concern scores. In Panel A, the OLS results show that firms with more old directors reduce CSR strengths and increase CSR concerns. This finding shows that the negative influence of old directors on CSR comes from both reducing activities to develop CSR strengths and increasing inaction to improve CSR concerns. In addition, a comparison of the coefficients of old directors shows that they have higher motivation to be reluctant to improve CSR concerns than to reduce activities to improve CSR strengths. This result seems to follow the considerations of CSR cost and benefit for old directors based on the SOC model, which implies that old directors are more sensitive to CSR costs and less sensitive to CSR benefits than young directors.

Table 6 The results of CSR strength and CSR concern

In Panel B of the DID results, the coefficients of interaction terms show that CSR strengths are significantly increased, while CSR concerns are not changed after old directors leave the boards. This finding indicates that after old directors leave their boards, the younger board increases the CSR engagement by prioritizing CSR strengths rather than mitigating CSR concerns. These findings imply that increasing activities to improve CSR concerns may be more challenging or less beneficial to directors than increasing activities that promote CSR strengths. This result tends to indirectly support the arguments of studies such as Ge and Liu (2015) on the benefit–cost comparisons of CSR strength and CSR concern. Thus, this finding also confirms our argument that the CSR decision-making is the result of weighing benefits and costs. In addition, it helps us understand that if a firm wants to participate in a CSR program, activities that enhance CSR strengths are more often adopted than those that improve CSR concerns because engaging activities to develop CSR strengths are more profitable and less costly than the activities to address CSR concerns.

Robustness Check

The empirical results from our OLS and DID regressions, which control for several potential influencing factors and prevent endogeneity problems, respectively, both show findings consistent with those of our main study. To strengthen our results, we perform robustness checks in this section. First, we consider that these outcomes may be driven by a particular sample. Second, we employ different firm-matching methods and different ways to identify industry effects in the DID regression. Third, we conduct placebo tests to prevent our results from being driven by luck. Finally, we use another CSR measure, the standardized CSR, for the CSR activities.

Robust Controls of Extra Factors

To prevent our result from being affected by specific samples, we provide further analyses to strengthen our findings. Table 7 shows the robustness check that prevents potential influences. First, we consider that the decision of the board may be driven by family directors in family firms (Bammens et al., 2008).³⁴ Further, studies (e.g., Beji et al., 2021; El Ghoul et al., 2016; Klein et al., 2018) find that family firms engage in fewer CSR activities than non-family firms because controlling shareholders seek to appropriate private benefits at the expense of minority shareholders. Although family firms account for only 8.3% of our sample, we should still address the possibility that our results are driven by family firms rather than old directors. To exclude the possibility that firms with a higher proportion of old directors are family firms, we exclude family firms from our sample and display the results in Panel A of Table 7.³⁵ The coefficients of the interaction term remain significantly positive and support our main findings.

Table 7 Robustness controls for the DID Analysis

Second, the gender diversity of a board affects its decision-making. Older directors are more likely to be male because Srinidhi et al. (2011) find that there were fewer female directors in the past and the number of female directors has gradually increased in recent years. Thus, when older directors leave their boards, percentage of female directors on those boards may rise.³⁶ Studies such as those of Bear et al. (2010), Boulouta (2013), Hafsi and Turgut (2013), Rao and Tilt (2016), McGuinness et al. (2017) and Williams (2003) suggest that the gender of directors influences the firm’s decision-making and find that firms with a higher percentage of female directors have higher levels of CSR activities. From the perspective of the possibility that the proportion of old directors is negatively correlated with the proportion of female directors, to ensure that the effect of CSR after older directors leave the board is not driven by female directors, we should control for the female proportion of the board in the DID regression. Specifically, to address this possible influence of gender, we control for the ratio of gender on the board when we select the matched firms and present the results in Panel B of Table 7. The coefficient of interaction term shows results consistent with our main findings.

Third, the positive results for CSR in the DID regressions may be influenced by distressed firms. Boubaker et al. (2020) and Gupta and Krishnamurti (2018) find that CSR engagement can be a mechanism for distressed firms to convey greater creditworthiness and mitigate their financial default risk. To address this possibility, we exclude distressed firms, which are defined as firms in the top 10% of the KZ index, from our sample. The KZ index is constructed by Kaplan and Zingales (1997) as the measure of financial constraints, where a higher financial constraint score means a higher likelihood of financial distress. The results of Panel C are consistent with our main findings.

Finally, we consider that CSR is usually used to signal financial transparency and reliability for acquired firms. Zerbini (2017) posits that CSR is a symptom of market failure and is used to signal information from insiders to outsiders. Gomes and Marsat (2018) and Maung et al. (2020) find that CSR is positively associated with acquisition premiums and CSR helps to reduce the information asymmetry and the target’s risk. Accordingly, to address this possibility, we exclude firms with a high tendency to be acquired, defined as not having a classified board, and/or a golden parachute, and/or a poison pill from the ISS database. The results in Panel D are consistent with our previous findings.

Different Matching Methods and Industrial Classification

Appendix Table 9shows the robustness tests of our DID regressions. Panel A displays the DID results using different matching methods together with different numbers of control firms. For the nearest neighbor method (NN Matching), we also use 1-to-1 (1:1), 1-to-3 (1:3), and 1-to-7 (1:7) treatment-to-control matching. For the radius matching method (radius matching), we choose 1 and 2 control firms for each treated firm. Panel B presents the DID results using different industrial classifications for the industry fixed effect. For the industry fixed effect, we, respectively, use two-digit SIC code (SIC2), three-digit SIC code (SIC3), and Fama–French 48 (FF48) industry classification. In Appendix Table 9, all coefficients of the interaction terms are significantly positive and consistent with the main results of the DID analysis shown in Table 3

Placebo Test

To ensure that our results are not driven by chance, we use a placebo test. We assign a pseudo treated firm that is randomly chosen from all firms in the sample and that has had no old director exit within 2 years. We then estimate the DID regressions in Model 2 of Table 3 based on these pseudo-event years and save the coefficient estimates on the indicator ${{Treat}_{i}\times Post}_{t}$. We replicate this procedure 1000 times and show the results of these bootstrap simulations in Fig. 2. Graph A and Graph B show the distribution of the coefficient estimates and the t-value estimates, respectively. In Fig. 2, the coefficients and the t-value estimates of the true effect based on DID regressions lie well to the right of the distribution of coefficient estimates from the placebo test. The actual coefficient estimate on Treat × Post (0.07) and its t-value estimate (2.35) is far from the mean and the standard deviations of the distribution in Fig. 2. Therefore, the result of the placebo test suggests that our finding is not driven by chance.

Fig. 2

Placebo tests

Robust Result from Standardized CSR

Regarding CSR measures, in addition to adjusted CSR, we also follow Di Giuli and Kostovetsky (2014) and adopt standardized CSR as a robust check. To make CSR measures comparable over time, in each year, the standardized CSR is a firm’s net CSR score minus the mean of net CSR scores of firms for the same year and then divided by the standard deviation of net CSR scores of firms. In Appendix, Table 10 shows the robustness results for the standardized CSR. Panel A shows the OLS results. All coefficients and Panel A are similar to those in Table 2. In addition, Panel B gives the DID results. The coefficients of the interaction term, ${{Treat}_{i}\times Post}_{t}$, are significantly positive and consistent with Table 3. Thus, we also find a similar effect of old directors on CSR when we use the standardized CSR.

In conclusion, by controlling for several sample-specific effects, using different methods, tests, and another CSR measure, these results are consistent with our main findings, suggesting that our empirical results are quite rigorous.

Discussions

Several previous studies examining the effect of director age on CSR mainly regard age as one of a director’s demographic attributes and use age diversity to measure the effect of director age (e.g., Beji et al., 2021; Ferrero‐Ferrero et al., 2012, 2015; Hafsi & Turgut, 2013). They hypothesize that the age diversity of directors can prevent narrow groupthinking and can increase sensitivity to social concerns, thus suggesting that age diversity has a positive impact on CSR. Although these papers have explored issues similar to ours, there are substantial differences between these previous studies and ours. We provide the following subsections for comparisons.

Discussion of Age Diversity and Age Level

Age diversity-related papers consider age as a variable for board diversity, whereas we directly examine the effect of aging directors. Studies such as Beji et al. (2021) argue for a positive relation between the age diversity of the board and CSR. Firms with lower age diversity (due to a higher concentration of directors in specific age groups) exhibit lower levels of CSR engagement.³⁷ This low age diversity may stem from a higher proportion of younger directors or, conversely, from a higher proportion of older directors. However, these papers do not distinguish between the effects of different age groups of directors. If the low age diversity in these papers results from a higher proportion of old directors, then their finding that boards with low age diversity have low CSR engagement is consistent with our results. However, if the low age diversity in these papers results from a higher proportion of young directors, then their finding implies that boards with a higher proportion of young directors have lower CSR engagement. This latter possibility is not consistent with our finding that boards with a higher proportion of older directors have lower CSR engagement. Age diversity research suggests that CSR decisions are affected by the age distribution of directors and does not directly examine which age groups drive impact of age diversity on CSR participation. Thus, it fails to understand the essential causes of the age effect. By contrast, our study directly investigates the CSR engagement of old directors, especially those aged 65 and above, to better understand the underlying reasons behind age-related influences.

Discussion of Age Explanations

Age diversity-related research and our study offer different perspectives and interpretations of how the age of directors affects CSR activities. Ferrero-Ferrero et al. (2012) argue that the age variable reflects diverse characteristics of knowledge or social experience among directors and suggest that the age diversity can be calculated by generation grouping because individuals are affected by the social and historical context of their era. Beji et al. (2021) and Ferrero-Ferrero et al. (2015) argue that increased age diversity prevents the adverse effects of groupthink and also accommodates different viewpoints, leading to more effective decision-making by the directors, which increases CSR activities. Therefore, the previous research regards age diversity as a reflection of different perceptions and experiences among board members.

Unlike these studies, we examine the impact of age on CSR decisions based on the decrease in resources with age. For directors, engaging in CSR burns cash initially, but may yield potential benefits in the long run. Limited resources and available time lead old directors to focus more on immediate wealth than future wealth. We find that compared with young directors, old directors tend to reduce CSR engagement because of their diminished resources and time as they age. We thus regard CSR decisions as the result of choices made by directors at different ages. Therefore, given that resources decrease with age, our study suggests that directors’ CSR decisions change with age, as directors make decisions that are beneficial to themselves based on resource availability at different ages.

Discussion of Theoretical Frameworks

Previous studies do not provide an explicit theory, whereas our paper provides a comprehensive theoretical framework based on the SOC model. Except for a few studies that provide an explanation for age diversity, other studies that directly examine the effects of age do not provide a theoretical basis for explaining the results. Post et al. (2011) argue that young adults are more concerned about the environment, while old adults exhibit higher moral reasoning. However, they find that 56-year-old directors exhibit the highest levels of CSR, while younger or older adults display lower levels of CSR. They argue that this finding is driven by the limited age range of their sample, and that the generation of 56-year-olds may be influenced by the history of the environmental movement. Hafsi and Turgut (2013) also explore the effect of age diversity but find a significantly negative relation between age diversity and CSR. They speculate that this phenomenon may be influenced by the exceptional circumstances observed in a minority of firms. Under age diversity, Beji et al. (2021) find that older directors have higher moral results, which is contrary to our findings. Thus, the existing literature does not provide a clear and convincing theoretical explanation.

By contrast, we establish a comprehensive theoretical framework based on the SOC model, which is widely used to analyze the impact of aging on the decision-making, taking into account the concept of resource decline with age. To confirm whether our empirical results align with the predictions of our theoretical mechanism, we further explore whether the negative impact of old directors on CSR activities arises from the assessment of CSR benefits and CSR costs. Thus, this specific theoretical framework makes our research more robust.

Discussion of Empirical Results

The previous literature does not obtain consistent empirical results. Beji et al. (2021) and Ferrero-Ferrero et al. (2015) confirm the positive effect of age diversity on CSR, whereas Hafsi and Turgut (2013) find a significantly negative relation. Post et al. (2011) find a curvilinear relation between age and CSR. Beji et al. (2021) find that old directors have high moral results. The lack of consistency in these results may be due to the use of less rigorous empirical methods. By contrast, we use a robust empirical approach, i.e., apply DID regression to address endogeneity issues and perform several robustness checks. Specifically, we use sudden deaths and unexpected retirement of directors as an exogenous shock for the DID method. Thus, our paper provides a more robust empirical finding on the effect of director age on CSR activities.

Conclusions

Summary of Empirical Results

We study the influence of directors’ aging on CSR because of the relevance of board directors for CSR and the significantly growing trend of old directors on boards over the last few decades. We find that firms with a higher percentage of old directors have lower levels of CSR activities. To address endogeneity concerns, we adopt a DID method by using the event of sudden deaths and unexpected retirements of old directors. The DID results show that a decreased proportion of old directors on the board can increase CSR engagement, consistent with our OLS regression results.

To test our hypothesis, we further examine the effects under several scenarios representing CSR benefits and CSR costs. First, we find that firms in which old directors receive fewer reputational spillover benefits from CSR, defined as firms with more busy directors and firms with a higher percentage of high-achieving directors, engage in significantly more CSR activities after old directors leave. In addition, after the sudden exit of old directors, significant CSR involvement occurs in firms with poor corporate governance, defined as firms with low institutional ownership and firms authorized to issue blank-check preferred stocks. These results imply that the negative effect of old directors on CSR comes from the lower benefits of CSR to their personal reputation and/or higher monitoring costs of participating in CSR, which is consistent with our hypothesis based on the SOC model.

Further, we find that the negative impact of older directors on CSR comes less from activity in developing CSR strengths and more from inaction in addressing CSR concerns (i.e., retaining more CSR concerns). After old directors leave, boards prioritize good activities to build CSR strengths rather than to address CSR concerns to improve CSR performance. Since studies such as Goss and Roberts (2011) suggest that investing in activities that improve CSR concerns is more costly or less profitable than engaging in activities that increase CSR strength, these findings on CSR strength and concern confirm our argument that CSR decision-making is the result of weighing benefits and costs.

Finally, we perform several robustness checks against the potential effects of family firms, female directors, distressed firms, and firms that are easy to acquire. We also use different firm-matching methods and different ways to identify industry influences. In addition, we conduct placebo tests to guard against luck outcomes and use standardized CSR, another measure of CSR activity. These checks also show consistent results.

Contribution and Academic Implications

Our study contributes to the literature regarding the role of directors on CSR in the following ways. First, responding to the significant trend of aging boards, our study explicitly focuses on the effects of old directors, especially those aged 65 and above, whereas previous studies do not distinguish between young directors and old directors in evaluating the effects of board age diversity. This approach helps identify the reasons behind age-related effects. Second, we attribute the negative effect of older directors on CSR engagement to diminishing resources with age, whereas age diversity research explains the effect of age on CSR decision-making as a reflection of different perceptions and experiences among board members. Third, while previous studies lack clear theoretical foundations, our research innovatively adopts the SOC model to analyze the effects of aging. In addition, we also explore CSR benefits and CSR costs to confirm whether our empirical results are consistent with the predictions of the theoretical mechanism. Finally, in comparison to previous studies, which lack consistent results, our paper offers more robust empirical findings because we use stringent empirical methods, including the use of DID regressions to address endogeneity, along with multiple robustness checks.

In academic research, the SOC model and the SST are two influential theoretical frameworks in the study of successful aging. The SOC is a prototypical model and does not stipulate particular goals or criteria, allowing it to be implemented in various fields, whereas SST focuses on the domain of emotion and social relations. Thus, our study mainly applies the SOC model and partially uses the concept of SST. From the academic perspective, these two theories contribute to our paper in the following ways. First, the pursuit of social emotions in SST may fall within our domain of non-economic wealth. Compared with SST, our study broadens the target domain by including economic wealth, which facilitates a comprehensive analysis of older directors’ CSR decision-making. Second, we argue that old directors have less incentive to engage in CSR, based on the concept that old directors perceive time as more limited and tend not to pursue future-oriented goals. This adaptive strategy of pursuing present-oriented goals in the face of age-related challenges is consistent with SST. Finally, in order to compensate for the losses caused by reduced resources, old directors seek non-economic activities to replace CSR activities. The non-economic activities we study belong to the comprehensive domain and are not limited to the emotional interaction studied by SST.

Economic and Policy Implications

We find a negative impact of old directors on CSR in our OLS regressions. In addition, our DID regression considering the sudden exit of old directors not only addresses endogeneity but also shows that a decline in the proportion of old directors on a board can increase CSR engagement. We find that when an old director departs from a firm, the firm experiences an increase of approximately 15% in its adjusted CSR score relative to the standard deviation of adjusted CSR scores following the exogenous shock, compared to PSM matched firms. Further, we find that this negative effect of old directors on CSR comes from the lower benefits to their personal reputation and/or the higher monitoring costs they incur from participating in CSR. We also find that the negative impact comes less from activity in developing CSR strengths and more from inaction to improve CSR concerns. These findings suggest that older directors have more limited time and resources than younger directors, making them more concerned about the costs of CSR engagement than the benefits. Therefore, old directors prioritize the assessment of CSR costs over the corresponding benefits. Overall, these findings confirm the concepts of the SOC model and also suggest that the decline in CSR engagement of old directors is a result to maximize their personal wealth by assessing CSR benefits and costs.

Our findings show that firms with a higher percentage of old directors tend to have lower levels of CSR engagement. Nevertheless, the proportion of old directors in the U.S. has been increasing over time as boards have aged in recent years. This trend may negatively impact CSR engagement. To promote CSR activities among firms, the following policies can be considered. First, the government may consider enacting regulations pertaining to the corporate governance structure to mitigate the adverse effects of old directors on CSR. Such regulations could include (1) imposing an upper limit on the proportion of older directors, and/or (2) instituting a reasonable retirement age for directors, and/or (3) imposing a lower limit on the proportion of younger directors. Second, the relatively limited experience and connections of younger individuals, when compared to their older counterparts, may reduce their chances to secure a director position in firms.

Thus, it may be useful to reverse effect of old directors by implementing “shadow boards” or “reverse mentorship programs,” which can facilitate greater involvement of the younger generation in decision-making procedures.

Limitations and Avenues of Future Research

We use the SOC model to predict the decision-making of older directors. Based on the inference of SOC, old directors decrease CSR activities and engage in non-economic activities to compensate for their losses caused by reduced resources. Examining whether old directors engage in more non-economic-related activities to replace CSR activities appears to be helpful in fully testing the inferences of the SOC model. However, since we lack data on non-economic-related activities, we cannot make direct examinations to support this argument. To address this limitation, we draw on the previous literature, which highlights the significance of non-economic-related activities (such as emotional relationships, social interaction, and leisure) as essential objectives for old adults, in order to indirectly support our argument (Charles & Carstensen, 2008; Litwin & Shiovitz-Ezra, 2006; Lu, 2011).

Our study can serve as a foundation for future research, particularly regarding the growing interest in environment, social, and governance (ESG) issues that are closely linked to CSR. While CSR emphasizes that firms should take responsibility for society and the environment, ESG highlights the importance of considering environmental, social, and governance factors in business operations. These factors include but are not limited to reducing carbon emissions, improving employee welfare, and strengthening corporate governance. Exploring the impact of older directors on a firm’s ESG decisions would be a promising avenue for future research. Furthermore, our paper raises concerns about the aging workforce in firms. If data were available on workforce aging, especially middle-class and rank-and-file employees, it would be possible to explore how aging affects corporate decision-making.

Appendix

Tables 8, 9 and 10

Table 8 Definitions of variables

Table 9 Robustness test of DID regressions using different matching methods and industrial classifications

Table 10 Robustness check of standardized CSR