Corporate social responsibility? Not my business any more: The CEO horizon problem in corporate social performance

In the context of corporate social performance (CSP), I examine how retirement of CEO may negatively affect the firm resource accumulation process and what mechanisms can be utilized to minimize the negative impact. According to the horizon problem hypothesis, retiring CEOs may reduce expenditure in long-term investments. Since investing in social responsibility-related areas tends not to have an immediate impact on firm performance, I expect that retiring CEOs may reduce expenditure in social responsibility-related areas. In this paper, in addition to examining the occurrence of the horizon problem in the new context of CSP, I evaluate the behavioral assumption behind this opportunistic CEO behavior. While previous research generally assumes that the primary motivation behind this opportunistic CEO behavior is the compensation maximization at retirement, my finding suggests that CEO's concern about postretirement career may be more attributable. In further support of the post-retirement career concern argument, the result shows that providing CEO with a post-retirement job opportunity as a director of the board mitigates the negative impact of CEO retirement on CSP. In contrast, granting long-term compensation (e.g. stock option) to CEOs, which has been considered a primary solution of the horizon problem, is found not to have a statistically significant mitigating effect on the negative relationship between CEO retirement and CSP.