Topic： Do Managers Invest in Stakeholder Relations to Insure against Personal Fallout? Evidence from Clawback Provisions
Speaker： Zhang Jingjing, Associate Professor, McGill University, Canada
Host：Dr. Chen Zhu, School of Accounting
Time：November 2, 2021 (Tuesday) 9:00-10:30
Virtual Platform：Tencent Meeting ID 201 235 988
Organizers: School of Accounting, Office of International Exchange and Cooperation, Research Office
Dr. Jingjing Zhang received her doctorate degree from Kellogg School of Management, Northwestern University and now serves as an associate professor in accounting at McGill University. Dr. Zhang published on top journal in accounting such as Contemporary Accounting Research and Journal of Financial Economics. Her research also focuses on contract economics, corporate governance, corporate social responsibility, firm’s disclosure activities, and innovation.
In this study, we provide evidence that managers invest in stakeholder relations for personal insurance-like protections. We exploit the setting of clawback adoptions to isolate changes in managers’ personal risk from changes in firm risk. We find that firms led by managers with clawback provisions in their compensation contracts engage more in corporate social responsibility (CSR) activities that primarily benefit stakeholders. The effect is stronger when managers perceive potential insurance-like benefits to be higher, namely, when corporate governance is weaker, future restatements are more likely, the amount of CEO compensation at stake is larger, the board of directors has more discretion over clawback enforcement, and the manager is less overconfident. These cross-sectional results support managers engaging in CSR for personal insurance-like protections as the underlying mechanism to explain our main result. We further find evidence suggesting that clawback-induced CSR activities reduce firm value, which is consistent with agency theory. Our study contributes to the literature by identifying a new source of motive for managers to take on CSR projects.