The Interplay of CEO Ability and Governance Robustness on the Performance Effects of Corporate Social Responsibility

Abstract

PurposeThis study aims to investigate how the association between corporate social responsibility (CSR) and firm performance, documented in prior research, is affected by the joint effects of managerial ability and attributes of the firm's governance structure.Design/methodology/approachUnbalanced panel contains the essence of cross-sectional time-series data. A significant F-test proves the inappropriateness of pooled OLS regression to the sample. Further, the rejection of the Hausman test null favors fixed-effects over random-effects. However, statistically significant results from Shapiro–Wilk test, Breusch–Pagan test and Wooldridge test reveal non-normal distribution of the dependent variable, the presence of heteroscedasticity and the existence of first-order autocorrelation, respectively. Thus, this study applies feasible generalized least squares with panel-specific autocorrelation structure (hence, a slightly smaller sample) controlling for heteroskedasticity to all models after lagging all the explanatory variables by a year.FindingsThis study finds that higher levels of managerial ability enable firms to benefit more/less from their CSR investments depending on the presence/absence of appropriate governance devices. While CEO ability may be seen as an indicator of how well the CEO might serve the firm in the market-domain strategies, the results suggest that this may not be the case in the non-market domain in the absence of appropriate governance mechanisms.Originality/valueThe arguments and analyses in this study support two important contributions to the growing literature on CSR. First, the current study is one of the few to identify CEO ability as an important factor that may influence the dynamics of the firm's CSR (see also Garcì-Sànchez et al., 2019 and Yuan et al., 2019). Second, this study examines whether governance robustness minimizes the potential for opportunistic behavior of more able CEOs or constraints the effectiveness of more able CEOs in decisions pertaining to CSR.