Managerial Labor Market Mobility and Corporate Social Responsibility

Abstract

The staggered rejection of the inevitable disclosure doctrine (IDD) by state courts increases the mobility of both managerial and rank-and-file employee labor markets. Flammer and Kacperczyk (2019) report a positive impact of the IDD rejection on firms’ corporate social responsibility (CSR) and interpret the finding as managers using CSR to retain employees. We propose and test managerial incentives to grow their external employment potential as another explanation. We find that the IDD rejection impact is stronger when industry firms are more likely to hire external CEOs and when external tournament prizes are greater, and weaker when CEOs are held up by unvested equity grants and when governance control is stronger. We fail to find that the IDD rejection effect varies with employee incentives. We further find that CSR investment does help CEOs obtain sought-after personal benefits by increasing their total pay and the likelihood of landing a new executive position.