Management Accounting Section Midyear Meeting

CEO Political Ideologies and CSR Contracting in Compensation Design

• In Event: Break/Research Exhibition 2: Performance Measurement and Control Systems

Abstract

This paper examines how CEOs’ political ideologies, specifically their political inclinations toward liberalism versus conservativism, affect the likelihood of linking CEO compensation to CSR performance measures (i.e., CSR contracting) . Drawing on upper echelons theory and political psychology arguments, we theorize that liberal and conservative CEOs hold different views about the instrumental merits of CSR contracting. Using a sample of CEOs in S&P 500 firms and their personal political donations to measure their political ideologies, we found empirical evidence that liberal-leaning CEOs are more likely to have CSR contracting in their compensation schemes. We further demonstrate that this relationship is stronger when (1) the prevailing political ideologies of the board compensation committee members are more liberal; (2) recent firm financial performance is better; and (3) the company’s external political environment is more liberal.

Authors

• Guoli Chen, Insead

• Zhengyu Li, Shanghai University of Finance and Economics

• Shuqing Luo, University of Hong Kong

• Lu Yang, Monash University