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Previous literature provides mixed evidence about the effectiveness of a code of ethics in limiting managerial opportunism. While some studies find that code of ethics is merely window-dressing, others find that they do influence managers' behavior. The present study investigates whether the quality of a code of ethics decreases the cost of equity by limiting managerial opportunism.

In order to test the hypothesis, the authors perform an empirical analysis on a sample of US companies in the 2004–2012 period. The results are robust to a battery of robustness analyses that the authors performed in order to take care of endogeneity.

Empirical results indicate that a higher quality code of ethics is associated with a lower cost of equity. In other words, firms with a more comprehensive code of ethics and better-designed implementation procedures limit managerial opportunism and pay a lower cost of equity because they are perceived by investors to be less risky.

The authors contribute to the literature in two ways. First, by looking at the market reaction to the code of ethics, thus capturing all its indirect possible benefits and second, by measuring not only the existence but also the quality of a code of ethics. Based on the results, policymakers may choose to further promote codes of ethics as an effective corporate governance mechanism.

The purpose of this study is to examine the moderating role of the characteristics of the chief executive officer (CEO) on the association between CEO power and corporate social responsibility (CSR) performance.

This paper conducts multiple regression analyses to empirically test the proposed hypotheses based on a sample of US-based publicly held companies. The sample period extends from 2000 to 2018. Firm-level CSR ratings are obtained from the Kinder, Lydenberg and Domini (KLD) database (currently known as MSCI ESG STATS). Financial data and CEO data are retrieved from Compustat and ExecuComp databases, respectively. Additional test and robustness analysis are performed.

This paper shows that firms with more powerful CEOs are less likely to engage in CSR activities. The negative association between CEO power and CSR is found to be exacerbated by CEOs who are younger, more competent and overconfident; however, this negative association is mitigated by CEOs who are female. This paper also finds that gender plays a more important role among CEO characteristics. Collectively, the findings highlight the potential opportunities to better understand the role of various CEO characteristics that jointly affect CSR.

First, this is the first study providing a comprehensive empirical analysis of how various CEO characteristics jointly affect CSR. Prior studies that focus on standalone CEO characteristics offer an incomplete picture of the relation between a single CEO characteristic and a firm's CSR performance. The current study thus extends the research field by examining the association between seemingly unrelated CEO characteristics and CSR performance. The results also highlight that gender is the critical factor moderating the relationship between CEO power and CSR performance when it is compared with CEO age, ability and overconfidence. Second, the authors add to the literature on employee selection by showing that female CEOs mitigate the negative effect of managerial power on CSR performance. Although the currently available empirical research in management control systems focuses on ex-post analyses of moral hazard mitigation for incumbent employees, both the economics and management literature acknowledge ex ante evidence suggesting that employee selection is even more important. Our findings may provide insight into the selection of CEOs.