Marina Martynova and Luc Renneboog
Hao Liang and Luc Renneboog
This chapter examines whether CSR investments occur mostly in firms with severe agency problems, which suggests that CSR is an agency issue. We demonstrate that this is not the case: CSR investments and performance are higher when dividends are high, leverage is high, cash flows and cash holdings are low, and when there is a high managerial pay-for-performance sensitivity. All these variables combined represent managerial discipline in terms of corporate investing. We also document that better legal protection of shareholder rights is positively related to CSR performance. This implies that when shareholders are more powerful relative to the management, the firms still make CSR investments, which is an indication that CSR investments are not likely to destroy value. Moreover, we find a direct positive relation between CSR investments and shareholder value (measured by Tobin’s Q). Overall, our results based on instrumental variable estimation refute the view that CSR is a manifestation of managerial agency problems.
Elena Pikulina and Luc Renneboog
In this chapter we investigate how the structure of a CEO’s compensation package – and especially his bonus and equity-based compensation (EBC) – influences his M & A decisions. We find that a CEO with a higher proportion of EBC is more likely to initiate (serial) acquisitions. Likewise, a CEO who receives a larger bonus is more eager to be involved in takeovers. We argue that equity-based compensation along with strong performance requirements (stock options and restricted stock become vested only if specific performance criteria are met) induce managers to adopt aggressive growth strategies through M & As. Large outside shareholders reduce a firm’s takeover activity, which is also the case when a CEO holds a significant equity stake.