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Corporate social performance and the managerial labor market

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Abstract

This paper examines the impact of a firm’s social performance on the CEO’s employment prospects. We find that CEOs are more (less) likely to leave office when there is a significant recent decline (improvement) in social performance. We then track departing CEOs’ subsequent employment records and find that the social performance of their previous employers improves their labor market outcomes. These CEOs are more likely to find a new executive position, move up to a larger public firm, and receive higher compensation from the new public firm. Using a Cox proportional hazard model, we find that the strong social performance of the previous employer helps CEOs find their next executive positions sooner. Overall, our results suggest that corporate social performance enhances CEOs’ labor market potential.

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Notes

  1. Several studies provide empirical evidence of the impact of career concerns in specialized labor markets, such as fund managers and analysts (e.g., Chevalier and Ellison 1999; Graham 1999; Hong, Kubik, and Solomon 2000; Hong and Kubik 2003; Kempf, Ruenzi, and Thiele 2009).

  2. Available from http://www.gsi-alliance.org/wp-content/uploads/2017/03/GSIR_Review2016.F.pdf

  3. We follow Kim, Park, and Wier (2012) in excluding the corporate governance dimension because it is commonly perceived as a distinct construct from CSR.

  4. If a firm’s CSR ratings are missing in any year, we use the CSR ratings for the other years to calculate the average CSR performance. If a CEO’s tenure is shorter than three years, the average CSR performance is computed using nonmissing ratings over the tenure of the CEO.

  5. Greene (2004) criticizes the inclusion of fixed effects in nonlinear models, as it has two shortcomings. The first is a practical obstacle regarding the difficulty of computing the MLE of the coefficients of nonlinear models with a large number of dummy variable coefficients; the second is incidental parameters problem that cast doubt on the statistical properties of the ML estimator. Therefore we do not estimate model (1) as a nonlinear model. However, our findings are robust to estimating a probit or a logit regression.

  6. All control variables in the model are constructed following Lys et al. (2015). Variable definitions are in Appendix 1. We do not include litigation fees and corporate governance score, as does the Lys et al. (2015) model, because these variables are from ASSET4, which we do not have access to. To control for corporate governance characteristics, we include the CEO-chair dual role indicator (CEO chair), the percentage of independent directors (Indep%), the number of directors on the board (Board size), and institutional ownership (Instown) in model (2). The first stage regression is reported in Online Appendix Table OA1, along with the comparison of the covariates before and after the weights are applied.

  7. We drop 45 such CEOs (less than 5% of the sample). Our results are robust to retaining these observations. When we set the dependent variables to be one only when a CEO finds a job within five years or 10 years, our inferences remain unchanged.

  8. In Online Appendix Table OA3, we examine whether CSR policies influence non-CEO executives’ career outcomes after their turnover. The results do not support the existence of significant influence.

  9. https://www.strategy-business.com/article/06210.

  10. The comparisons partitioned by CSR performance measured over the most recent one and two years are similar and not tabulated.

  11. We also consider the other two alternative CSR performance measure indicators that capture significant changes in CSR performance as in Section 3. However, for this sample, significant changes before CEO turnover are rare—there are only four (three) cases of significant increases (decreases) in CSR performance.

  12. The results on the control variables are largely consistent with prior findings. While Fee and Hadlock (2003) find firm size and stock returns to be significant in some cases when modeling executive job jumps, Desai et al. (2006) do not find firm size or stock returns to explain the likelihood of subsequent employment of displaced managers. Consistent with both studies, we find strong evidence that CEO tenure is negatively associated with the likelihood of finding a new job.

  13. Inferences are the same when we measure firm size using market value of equity. To capture significant changes in firm size, we also examine whether the new employer is in a higher firm size decile than the previous firm and get similar inferences.

  14. Alternatively, we constrain the sample to CEOs who find jobs in public firms and find that CSR-conscious CEOs are more likely to find jobs in larger public firms using a logit model. The results are presented in Online Appendix OA4.

  15. We also examine the robustness of the multinomial logit regression in Table 6 by redefining the groups as departing CEOs (1) joining another public firm as the CEO, (2) joining another public firm not as the CEO, and (3) not joining any public firms. Untabulated results show similar results as those in Table 6.

  16. Alternatively, we constrain the sample to CEOs who find jobs in public firms and find that CSR-conscious CEOs are more likely to find higher-paying jobs in public firms using a logit model. The results are presented in Online Appendix OA4.

  17. In the last two columns of Panel C, we do not include industry fixed effects due to the limited difficulty converging. We also examine whether executives from CSR firms are more likely to move to another public firm in a larger size decile and compensation decile and find robust results.

  18. We expect the results to be more pronounced in recent years, when shareholders are increasingly concerned about environmental and social performance. When we partition our sample from 1992 to 2012 into two subperiods, 1992–2002 and 2003–2012, we find that the results are stronger in the latter period.

  19. We report the results of these robustness checks in Online Appendix Table OA5.

  20. We have also considered another alternative measure of CSR performance, i.e., the residuals from model (2). When we include year and industry fixed effects, as do Lys et al. (2015), CSR performance measured by the residuals is significantly positively associated with CEOs’ career outcomes, consistent with the main results. However, when we include firm fixed effects in the model of CSR performance, the correlation between the residuals and CEO job market prospects ceases to be significant. The sensitivity of the results may relate to the lack of time-variation in firms’ CEOs.

  21. We also use the Kaplan-Meier estimator, a nonparametric approach, to estimate the survivor function in the presence of right censoring. The survivor function of CSR executives is noticeably below that of non-CSR executives, indicating that the duration of unemployment is shorter for CSR executives. The figure is untabulated in the paper but shown in Online Appendix Figure OA1.

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Acknowledgments

We greatly appreciate the helpful comments and suggestions from Lakshmanan Shivakumar (editor) and an anonymous reviewer. We also benefit from comments from Richard Crowley and the participants of the 2018 AAA Annual Meeting and the 2020 Hawaiian Accounting Research Conference. Ling Lisic gratefully acknowledges financial support from the Wayne E. Leininger Professorship at Virginia Tech. We thank Enkai Ji, Haojun Kang, Wen-chi Yeh, and Zijun Xu for their excellent research assistance.

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Authors and Affiliations

  1. LeBow College of Business, Drexel University, Philadelphia, PA, USA

    Xin Dai

  2. Rutgers Business School-Newark and New Brunswick, Rutgers University, Piscataway, NJ, USA

    Feng Gao

  3. Pamplin College of Business, Virginia Polytechnic Institute and State University (Virginia Tech), Blacksburg, VA, USA

    Ling Lei Lisic

  4. School of Business, University of California, Riverside, Riverside, CA, USA

    Ivy Xiying Zhang

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  1. Xin Dai
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Correspondence to Xin Dai.

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Appendix 1: Variable Definitions

Appendix 1: Variable Definitions

Variable

Definition

Job Market Consequences

CEO turnover

A dummy variable equal to one if a CEO leaves the position in the following year and zero otherwise.

Finding a new job

A dummy variable equal to one if a CEO finds a new job after turnover and zero otherwise.

CSR Related Variables

CSR score

The difference between the number of strengths and concerns Averaged over three years before CEO turnover.

CSR firm

A dummy variable equal to one if a firm’s average CSR score over the last three years is positive and zero otherwise.

CEO to firm ratio

The ratio of the number of articles with CEO mentions to the number of the firm’s mentions in a firm’s self-submitted CSR news releases from Corportate Social Responsibility Newswire (CSRwire).

CSR from bottom to top quartile

A dummy variable equal to one if a firm’s CSR score increases from the bottom to the top quartile in the same industry (SIC1)-year and zero otherwise.

CSR from top to bottom quartile

A dummy variable equal to one if a firm’s CSR score decreases from the top to the bottom quartile in the same industry (SIC1)-year and zero otherwise.

Other Control Variables

Size

The market capitalization of the firm.

ROA

The average industry-adjusted ROA over the last three years.

Ret

Average industry-adjusted return over the last three years.

Age

CEO’s age as of the turnover year.

Tenure

CEO’s tenure length as of the turnover year.

Restate

A dummy variable equal to one if there is a restatement in the past three years and zero otherwise.

CEO chair

A dummy variable equal to one if the CEO is also the chairman of the board and zero otherwise.

Indep%

The percentage of independent board members.

Board size

The number of directors on the board.

Instown

The percentage of shares owned by institutional owners.

Asset turnover

Net sales scaled by total assets.

Profit margin

Income before extraordinary items scaled by net sales.

Cash

Cash scaled by total assets.

Cash flow from operations

Cash flow from operations scaled by total assets.

Leverage

Sum of long-term and short-term debt scaled by total assets.

Market-to-book

The sum of market value of equity, long-term debt, debt in current liabilities, liquidation value of preferred stock, and deferred taxes and investment credit, divided by total assets.

Total assets

Total assets of the firm.

R&D

Research and development expenses scaled by net sales.

Advertising

Advertising expenses scaled by net sales.

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Dai, ., Gao, F., Lisic, L.L. et al. Corporate social performance and the managerial labor market. Rev Account Stud 28, 307–339 (2023). https://doi.org/10.1007/s11142-021-09643-3

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