We use CEO wealth sensitivity to stock performance (delta) and stock volatility (vega) to provide empirical evidence that CEO compensation structure influences firm Corporate Social Responsibility (CSR) ratings. We find that delta has no significant effect on CSR rating, while vega has a strong, causal relationship with CSR. This leads us to believe that CEOs do not view CSR as a value enhancing project, but instead view it as a way of increasing firm risk, thereby increasing their own compensation through vega.

By: Atif Ikram, Wayne State University – School of Business Administration, Zhichuan Frank Li, University of Western Ontario – Ivey School of Business, and Travis MacDonald, University of Western Ontario

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