Do government say-on-pay policies distort managers' engagement in corporate social responsibility? Quasi-experimental evidence from China

Against the backdrop of a series of regulations issued by the Chinese Government in an effort to rein in top executives' compensation in state-owned enterprises, this study investigates whether the exogenous shock resulting from restricting top executives' pay levels modifies their incentives to conduct socially responsible activities. Our analyses, using a baseline regression and a difference-in-differences (DiD) approach, both reveal that the pay restriction on top executives imposed by the government adversely affects firms' CSR performance. The results hold after conducting tests to alleviate the concerns about possible self-selection bias and reverse causality between the pay restriction and CSR. In addition, we reveal that the negative effect of the pay restriction on CSR is alleviated in regions with a high level of social capital, suggesting that the social expectation of firms serves as an influential factor in managers' CSR decisions. Meanwhile, managerial shareholding mitigates the negative effect of the pay restriction on CSR performance because of an alignment of interests between managers and other stakeholders. (C) 2021 Elsevier Ltd. All rights reserved.