Does a competitive external labour market affect corporate social responsibility? Evidence from industry tournament incentives

We examine whether external labour market incentive, as captured by CEOs’ industry tournament incentives (CITI), is related to a firm’s corporate social responsibility (CSR) behaviour. We find that firms with greater CITI are associated with fewer CSR engagements. We also find that CEOs, while responding to labour market incentives, prioritize the allocation of firm resources to core business operations, such as investment in capital expenditure. This negative CITI-CSR relation is more pronounced for firms with financing constraints and firms in “sin” industries as well as in environmentally less-sensitive industries. Moreover, firms having low-CSR stemming from greater CITI contribute to shareholders’ wealth by enhancing firm value, performance, and productivity. Our main finding is robust to several endogeneity tests including a quasi-natural experiment. Overall, we show that CEOs’ external labour market incentives have important implications on firm-level CSR engagements.