Studies on the Association of Earnings Pressure, Socially Responsible Actions, and Managerial Pay Gap

Agency theorists theoretically eulogize the capital market as an efficient mechanism for shareholder monitoring when it comes to performance expectations, whereas the executives in practice usually concern about the pressure from the capital market to an extent that the goal for short-term earnings is set as the first priority instead of long-term strategic commitment. Such distinctive conflict between theory and practice triggers the first year research project to explore the relationship between earnings pressure and socially responsible actions in tactical and strategic manners by concerning managerial cognitive perception. Departs from the general consensus in most of the CSR literature whose arguments in general on a long-term orientation, this study draws on competitive dynamics literature for insights into strategic and tactical CSR to better managing expectations by making dialogues with capital market agents, i.e. financial analysts. In particularly, in a risk-taking perspective, executives are likely to stand on the tendency of thinking that they are better than they really are to overestimate their own efficacy in dealing with the capital market pressure. Thus, the first year study aims to answer how capital market pressure influences firm-level strategies and policies by drawing on competitive dynamics literature for insights into discriminating tactical and strategic socially responsible behavior, and taking executive cognitive characteristics into consideration.Moreover, the trade-offs on short- and long-term actions may interlock compensation package, the executives may thus choose to participate in favorable actions to cater for stakeholder needs and the interests of their own simultaneously. Increasingly, firms’ socially responsible behavior has extended to include a variety of interests represented by diverse stakeholder groups, the value-enhancing capabilities of CSR thus is acknowledged both in practices and academics. However, socially responsible behavior is discriminated in accordance with corporate resources and managerial commitment, which result in value disparately. The alignment of discriminating socially responsible actions with the interests of the firm is extraordinarily important because the structure of executive compensation is fairly contingent on the value creation of CSR engagement. Accordingly, the second year research project will go further to examine whether and how the pay gap of executive compensation is influenced by discriminating socially responsible actions along with the moderating effect of idiosyncratic risk-taking capability. Particularly grounding on risk-aversion hypothesis, this second year study tries to provide evidence that female CEOs’ higher risk aversion would contribute to larger pay gaps that the cash-based pay would be realized in a greater proportion compared to equity-based pay in their compensation package, when socially responsible actions are participated tactically to create immediate value.This two-year research projects not only contributes to fill the research gap between capital market literature and corporate governance by integrating competitive dynamics view, but also highlights the ethics literature on income inequality issues by taking the efficacy of managerial risk-taking capability into consideration.

Project ID:PF10907-2647
External Project ID:MOST109-2410-H182-016