Managerial Contracting and Corporate Social Responsibility
This paper presents a positive theory of corporate social responsibility set in a managerial capitalism context in which managers instead of markets allocate resources, including social expenditures. The theory focuses jointly on the operational management of the firm and on its social expenditures as influenced by a compensation contract chosen by shareholders in a capital market that prices social expenditures. The theory provides three explanations for compensation systems that encompass social performance. First, consumers may reward the firm for its social expenditures; second, managers may have personal preferences for contributing to social causes; and third, the shareholder clientele a firm attracts may prefer social expenditures. The more consumers reward the firm for its social expenditures the higher powered are the profit incentives, so management compensation in increasing in corporate social expenditures. In the theory firms with higher ability managers have both higher operating profits and higher social expenditures when times are good, so a positive correlation is predicted. In bad times, however, the correlation is negative, except for firms with very low ability managers in very bad times, where the correlation is zero.
Year of publication: |
2006-09
|
---|---|
Authors: | Baron, David P. |
Institutions: | Graduate School of Business, Stanford University |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Competing for the Public through the News Media
Baron, David P., (2003)
-
The Economics and Politics of Corporate Social Performance
Baron, David P., (2008)
-
A Positive Theory of Moral Management, Social Pressure, and Corporate Social Performance
Baron, David P., (2006)
- More ...