Mandatory CSR disclosure and CEO pay performance sensitivity in China: evidence from a quasi-natural experiment
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 30 May 2023
Issue publication date: 5 January 2024
Abstract
Purpose
This paper aims to empirically examine the impact of mandatory CSR disclosure on the CEO pay performance sensitivity.
Design/methodology/approach
Using the mandatory requirement of CSR disclosure as an exogenous shock, the authors compare the changes in CEO pay performance sensitivity for treatment firms with control firms through a difference-in-difference (DiD) approach.
Findings
The authors find that mandatory CSR disclosure enhances CEO pay performance sensitivity. The results also show that monitoring CEO power is a conduit through which mandatory CSR disclosure affects CEO pay performance sensitivity. The positive impact is more profound in firms with a powerful CEO, i.e. one who is politically well-connected, holds dual roles as both CEO and Chairman, and/or has had a long tenure. Furthermore, the increased CEO pay performance sensitivity after the mandate is prominent among state-owned enterprises (SOEs) only.
Practical implications
The findings of this paper have implications for other economies with similar institutional backgrounds as China. Although the mandatory CSR disclosure does not require firms to spend on CSR investment, the mandatory CSR disclosure alters firm behaviour, and mitigates agency problems.
Originality/value
This paper contributes to the studies on the impact of CSR disclosure on firms' behaviour. To the authors' knowledge, this is the first study to examine the effects of mandatory CSR disclosure on CEO pay performance sensitivity using the quasi-natural experiment settings.
Keywords
Acknowledgements
The authors acknowledge the useful comments from the participants of the 31st AsianFA Annual Meeting in Ho Chi Minh City, Vietnam, July 2019, and the 10th Financial Markets and Corporate Governance annual conference in Sydney, Australia, April 2019. The authors thank the valuable suggestions from the 3rd Summit of Global Chinese Accounting Association (GCAA), in Shenzhen, China, November 2021. The authors are also grateful for the guidance from the audiences at seminars at the University of Wollongong and Curtin University.
Citation
Song, S., Cheung, A.(W).K., Jun, A. and Ma, S. (2024), "Mandatory CSR disclosure and CEO pay performance sensitivity in China: evidence from a quasi-natural experiment", International Journal of Managerial Finance, Vol. 20 No. 1, pp. 168-191. https://doi.org/10.1108/IJMF-04-2022-0181
Publisher
:Emerald Publishing Limited
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