What’s in it for me? CEO career disruption concern and corporate philanthropy

Abstract

In this study, using a behavioral agency perspective, we argue that corporate philanthropy (CP) may be affected by CEOs’ career disruption concern. If predecessors had a quick dismissal (with short tenure), incumbent CEOs may be concerned that they may not stay in office for a long enough time to benefit from the goodwill that can be created by CP. Moreover, as CEO dismissal is to a great extent dominated by short-term financial performance, incumbent CEOs may be motivated to mitigate career disruption concern by increasing short-term accounting earnings which often comes at the cost of long-term investment and discretionary expenditures such as CP. Accordingly, we posit a negative relationship between predecessor’s quick dismissal and CP. However, we argue that this negative relationship will be weakened by CEO power, as powerful CEOs are more in control of their career prospects. In contrast, this negative relationship will be strengthened by board independence, as outside independent directors may rely more on short-term performance to evaluate a CEO’s quality which motivates incumbent CEO to boost short-term performance at the cost of CP. Evidence from publicly listed non-state-owned manufacturing companies in China’s stock exchanges during the 2004–2015 period provides support for our predictions.