Do tournament incentives motivate chief executive officers to be socially responsible?

• Published in: Managerial auditing journal 2020-04, Vol.35 (5), p.597-619
• Main Authors: Ali, Shahid, Zhang, Junrui, Usman, Muhammad, Khan, Muhammad Kaleem, Khan, Farman Ullah, Siddique, Muhammad Abubakkar
• Format: Article
• Language: English
• Subjects: Brand loyalty; Chief executive officers; Corporate governance; Corporate objectives; Employees; Executive compensation; Incentives; Investigations; Politics; Social policy; Social responsibility; Society; Stakeholders; Stockholders
• ISSN: 0268-6902; 1758-7735
• DOI: 10.1108/MAJ-05-2019-2288

Purpose This study aims to investigate the question concerning whether tournament incentives motivate chief executive officers (CEOs) to be socially responsible. Design/methodology/approach Data from all A-share Chinese companies listed on the Shanghai and Shenzhen stock exchanges for the period from 2010 to 2015 are used. To draw inferences from the data, ordinary least squares (OLS) regression and cluster OLS are used as a baseline methodology. To control for the possible issue of endogeneity, firm-fixed-effects regression, two-stage least squares regression and propensity score matching are used. Findings A reliable evidence is found that tournament incentives motivate CEOs to be more socially responsible. Additional analysis reveals that the positive effect of CEO tournament incentives on corporate social responsibility performance (CSRP) is more pronounced in state-owned firms than it is in non-state-owned firms. The study’s findings are consistent with tournament theory and the conventional wisdom hypothesis, which proposes that better incentives lead to competitiveness, which improves financial and social performance. Practical implications The study’s findings have implications for companies and regulators who wish to enhance CSRP by giving tournament incentives to top managers. Investment in social responsibility may reduce the conflict between executives and employees and improve the corporate culture. Originality/value This study contributes to the existing literature by providing the first evidence that CEOs’ tournament incentives play a vital role in CSRP. The study’s findings contribute to tournament theory.