CEOs’ Prosocial Behavior, Their Careers and Corporate Policies

Abstract

This paper examines the associations of Chief Executive Officers' (CEOs') prosocial behavior with their career paths and corporate policies. Using individuals' involvement with charitable organizations as a proxy for prosocial behavior, we find that prosocial individuals are promoted to CEOs faster than non-prosocial individuals. In addition, compared with firms with non-prosocial CEOs, firms with prosocial CEOs tend to have lower executive subordinate turnover, implement more employee-friendly policies, experience higher customer satisfaction, and engage in more socially responsible activities. We also find that firms with prosocial CEOs have higher firm value. These results are corroborated when we compare changes in corporate policies and firm value around different types of CEO turnovers: a prosocial CEO replacing a non-prosocial CEO versus other types of CEO turnovers. Our results thus suggest that prosocial CEOs are more likely to make corporate decisions that benefit a wide range of firm stakeholders.

Prosocial CEOs and Accounting Information Quality

“…We focus on scenarios when CEOs are most likely to be subject to the agency problem and provide comprehensive evidence that prosocial CEOs are less likely to sacrifice information quality for their own benefit. Corroborating Feng et al (2021), Our findings indicate that our measure of prosocial CEOs captures meaningful differences in their prosocial tendencies and can be useful in explaining variations in their decisions. Thus, our results also have implications for boards' hiring decisions.…”

“…Wally and Baum (1994) posit that CEOs' personal values influence their firms' decision-making processes. In the same spirit, Feng et al (2021) argue that leadership's prosocial tendency is an important factor that affects firms' corporate policies. They find support for the idea that prosocial CEOs are more likely to make corporate decisions that benefit a wide range of firm stakeholders (e.g., employees, customers, the society in general).…”

“…Prosocial CEOs tend to engage in prosocial activities that primarily benefit others, such as serving on the board of a charitable organization (Feng et al 2021). To the extent that prosocial CEOs do not behave according to narrow self-interests but instead care more about shareholders' interests, they are less subject to the agency problem than non-prosocial CEOs; that is, they are less likely to make choices that maximize their own benefits at the expense of shareholders' welfare.…”

“…Specifically, we use the BoardEx database to obtain data on managers' off-the-job activities, including involvement with various foundations and charitable groups. Following Feng et al (2021), we define a CEO as being prosocial (Prosocial) if she is involved with at least one organization that is classified as a charitable organization by the Internal Revenue Service (IRS). Feng et al (2021) documents that CEOs' involvement with charitable organizations reflects their tendency to care various stakeholders of the companies, including employees, customers, the society, and shareholders.…”

Behavioral Economics of Accounting: A Review of Archival Research on Individual Decision Makers*

“…Prior research finds that a firm's CSR rating is related to the characteristics of its top executives including political affiliation (Di Giuli and Kostovetsky 2014;Hutton et al 2015), hubris (Tang et al 2015), and family environment (Cronqvist and Yu 2017). More recent research uses a CEO's personal involvement with charitable organizations as a proxy for social preferences and shows that firms with prosocial CEOs tend to have lower executive subordinate turnover, implement more employee-friendly policies, achieve higher customer satisfaction, and engage in more socially responsible activities (Feng et al 2021). 24 A point that we want to emphasize is that understanding whose preferences influence a firm's CSR activities has important implications from a governance and an efficiency standpoint.…”