Working Paper: CEPR ID: DP4648
Authors: Giovanni Cespa; Giacinta Cestone
Abstract: When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased by the institutionalization of stakeholder protection depriving incumbent CEOs of activists? support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others? agenda.
Keywords: Corporate Governance; Corporate Social Responsibility; Managerial Entrenchment; Social Activism; Stakeholders
JEL Codes: G34; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stakeholder protection (G38) | Managerial turnover (J63) |
| Stakeholder protection (G38) | Firm value (G32) |
| Managerial turnover (J63) | Firm value (G32) |
| Stakeholder protection (G38) | Managerial entrenchment (G34) |
| Managerial entrenchment (G34) | Firm performance (L25) |
| Stakeholder activism (G34) | Managerial turnover (J63) |
| Stakeholder activism (G34) | Firm performance (L25) |
| Lack of stakeholder protection (G38) | Managerial concessions (M12) |
| Managerial concessions (M12) | Shareholder value (G32) |
| Inefficient CEOs (M12) | Stakeholder protection (G38) |