Is managerial entrenchment always bad? A CSR approach

In this paper, we argue that managerial entrenchment may be positive when there is excessive external pressure from financial markets. In these situations, managers have more freedom to implement value-enhancing strategies, such those related to corporate social responsibility (CSR) activities. This is a good-type of entrenchment. On the other hand, when the external pressure is not so high, given that the pressure is from inside the firm, managerial entrenchment is bad and the use of CSR investments may exacerbate the agency problem. We prove this claim in an empirical study conducted of 279 international firms that operate in 22 different countries for the period 2002-2005. These firms participate in two different institutional contexts: that of the Anglo-Saxon countries, where the pressure of financial markets is intensive, or that of the Continental European countries in which the corporate control mechanisms are mainly internal.