The impact of CEO power and institutional discretion on CSR investment

Abstract

Abstract Based on a large international sample, we show how the decision‐making power of CEOs in conjunction with prevailing institutional discretion relates to corporate resources allocated toward CSR strategy. First, especially with greater institutional discretion, powerful CEOs pursue exaggerated CSR strategies aiming at reputational gains for their private benefit, while not necessarily bearing the costs of their decisions. Second, such CEO‐induced CSR enhancements turn out to be defective CSR overinvestment, ultimately entailing a decrease in firm value. By complementing organizational factors with institutional characteristics, we refute previous contradicting empirical evidence regarding a significant CEO effect and show a conditional relation between CEO power and CSR choice. Our results are robust to alternative sample compositions, different variable definitions, and various methodological specifications.