The sensitivity of corporate social performance to corporate financial performance: A "time-based" agency theory perspective

Abstract

This study focuses on micro-level phenomena and time issues that have been traditionally neglected in both corporate governance and corporate social responsibility research. Drawing on agency theory concerning time-based managerial incentives (i.e. short term and long term), we investigate which managerial incentives for compensation drive the sensitivity of corporate social performance (CSP) to corporate financial performance (CFP). Using data for publicly listed Korean firms, we found a significant and positive relationship between CSP and CFP, with this relationship strengthened in firms with high managerial ownership but insignificant in those with high earnings-based compensation. Furthermore, we found that the interaction effects of CSP and high earnings-based compensation on CFP become positive in firms with high managerial ownership, indicating that the sensitivity between CSP and CFP is driven by long-term managerial incentives. JEL Classification: M12, M14, G35.