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Review of Accounting Studies
Erschienen in: Review of Accounting Studies 1/2023

05.11.2021

Corporate social performance and the managerial labor market

verfasst von: Xin Dai, Feng Gao, Ling Lei Lisic, Ivy Xiying Zhang

Erschienen in: Review of Accounting Studies | Ausgabe 1/2023

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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.
Vorheriger Artikel Attention to dividends, inattention to earnings?
Nächster Artikel How does the market for corporate control impact tax avoidance? Evidence from international M&A laws

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Fußnoten
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).
 
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.
 
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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Metadaten
Titel
Corporate social performance and the managerial labor market
verfasst von
Xin Dai
Feng Gao
Ling Lei Lisic
Ivy Xiying Zhang
Publikationsdatum
05.11.2021
Verlag
Springer US
Erschienen in
Review of Accounting Studies / Ausgabe 1/2023
Print ISSN: 1380-6653
Elektronische ISSN: 1573-7136
DOI
https://doi.org/10.1007/s11142-021-09643-3

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