"The effect of executive compensation structure on CSR decoupling: The moderating effect of board functioning and analyst coverage"

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An increase in stakeholder pressure leads to firms increasingly investing in their corporate social responsibility (CSR) actions. The opportunistic behaviour where a firm’s CSR-related external actions (disclosures) are not aligned with their internal actions (performance), is referred to as CSR decoupling. This study examines whether an increase in the ratio of equity-based compensation of an executive can incentivize said executive to decrease CSR decoupling, and whether this relationship is moderated by board functioning and analyst coverage. An S&P 1500 sample including 484 executives of 209 firms over a period of 6 years (2014 – 2019) is used to test the hypotheses. The results show that an increase in the ratio of equity-based compensation significantly decreases CSR decoupling, whereas board functioning significantly increases CSR decoupling. The expected effect of analyst coverage on CSR decoupling finds no significant support. Furthermore, board functioning is found to have a significant negative moderating effect on the main relationship, whereas analyst coverage shows no significant moderating effect. This paper provides insights in what factors either increase or decrease asymmetric information, in the form of CSR decoupling, when there is a separation of ownership and control. These insights can be valuable for policymakers, stakeholders, board members and regulators.
Faculteit der Managementwetenschappen