Integrating corporate social responsibility criteria into executive compensation and firm innovation: International evidence

Albert Tsang, Kun Tracy Wang*, Simeng Liu, Li Yu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

Using a large sample of firms from 30 countries, we find that the integration of corporate social responsibility (CSR) criteria into executive compensation is associated with greater innovation output in countries around the world. We also find that this positive association is stronger in countries with weak stakeholder orientation, countries with weak legal environments, and countries without mandatory CSR reporting requirements. These findings suggest that CSR contracting can compensate for institutional voids and high stakeholder demand for CSR, and thereby foster firm innovation. The results of the channel analyses suggest that a greater level of employee innovation productivity, enhanced managerial risk-taking, and greater responsiveness of firms' R&D investment to their investment opportunities play a significant role in the association between CSR contracting and innovation. Overall, our study demonstrates in a global context the importance of linking executive compensation to nonfinancial criteria in addition to financial criteria, and it documents the heterogeneity in the effect of CSR contracting on firm innovation in different countries.

Original languageEnglish
Article number102070
Number of pages27
JournalJournal of Corporate Finance
Volume70
DOIs
Publication statusPublished - Oct 2021

Scopus Subject Areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

User-Defined Keywords

  • CSR contracting
  • Executive compensation
  • Innovation
  • International
  • Patent
  • Sustainability

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