CEO power, corporate social responsibility, and firm value: a test of agency theory

Purpose - The purpose of this paper is to explore whether firms with powerful chief executive officers (CEOs) tend to invest (more) in corporate social responsibility (CSR) activities as the over-investment hypothesis based on classical agency theory predicts. Design/methodology/approach - This paper tests an alternative hypothesis that if CSR investment is indeed an agency cost like the over-investment hypothesis suggests, then those activities may destroy firm value. Findings - Using CEO pay slice (Bebchuk et al., 2011), CEO tenure, and CEO duality to measure CEO power, the authors show that CEO power is negatively correlated with firm's choice to engage in CSR and with the level of CSR activities in the firm. Furthermore, the results suggest that CSR activities are in fact value enhancing in that as firms engage in more CSR activities their value increases. Originality/value - The first paper to study CEO power and CSR and their impact on firm value.