Publication: Is managerial entrenchment always bad? : a CSR approach
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2009
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Abstract
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.