Abstract
We examine the effect of CEO inside debt on corporate social responsibility (CSR). We document a positive relation between CEO inside debt and CSR. This positive relation is attenuated not only when firms face high risk, but also when firms have high short-term institutional ownership. Our evidence supports the view that CEOs with large inside debt holdings are more concerned about firm sustainability and, are therefore more likely to prefer CSR for long-term firm benefits, i.e., the long game. We also find that CSR and CEO inside debt jointly exert a significantly positive impact on long-run stock performance, particularly in the presence of a low level of short-term institutional holdings. Overall, our findings highlight the importance of aligning institutional investor preferences with CEO incentives in order to maximize shareholder benefits from CSR investment.
•CEOs with more inside debt engage in more CSR activities.•Our finding is consistent with the long-term perspective hypothesis and risk-aversion hypothesis.•The positive relation between CEO inside debt and CSR is attenuated among high-risk firms, - inconsistent with the risk-aversion conjecture.•We also incorporate institutional ownership into our analysis.•A myopic oriented environment discourages CEOs from engaging in long-term CSR practices