Is managerial entrenchment always bad and corporate social responsibility always good? A cross‐national examination of their combined influence on shareholder value

• DOI: http://doi.org/10.1002/smj.3132
• Author: Ruth V. Aguilera,Jordi A. Surroca,Kurt Desender,Josep A. Tribó
• Date: 01 May 2020
• Published date: 01 May 2020

RESEARCH ARTICLE

Is managerial entrenchment always bad and

corporate social responsibility always good?

A cross-national examination of their combined

influence on shareholder value

Jordi A. Surroca

1

| Ruth V. Aguilera

2,3

| Kurt Desender

4

|

Josep A. Tribó

4,5

1

Innovation Management and Strategy Department, University of Groningen, Groningen, The Netherlands

2

International Business and Strategy Department, D'Amore-McKim School of Business, Northeastern University,

Boston, Massachusetts

3

ESADE Business School, Universitat Ramon Llull, Barcelona, Spain

4

Department of Business Administration, Universidad Carlos III de Madrid, Getafe (Madrid), Spain

5

School of Business, Stevens Institute of Technology, Hoboken, New Jersey

Correspondence

Jordi A. Surroca, Innovation

Management and Strategy Department,

University of Groningen, Nettelbosje 2,

Groningen, The Netherlands, 9747 AE.

E-mail: j.surroca@rug.nl

Funding information

European Social Fund; Spanish

Ministerio de Economía y Empresa,

Grant/Award Number: 2016-00463-001;

Comunidad de Madrid, Grant/Award

Number: S2015/HUM-3353; Spanish

Ministerio de Ciencia e Inovación, Grant/

Award Numbers: UNC315-EE-3636,

PGC2018-097187-B-I00,

ECO2015-68715-R, ECO2012-36559,

ECO2009-08308, ECO2009-10796

Abstract

Research summary: Building on the comparative

capitalism's notion of institutional complementarities,

we examine whether firms’simultaneous adoption of

managerial entrenchment provisions (MEPs) and

corporate social responsibility (CSR) reinforces or

undercuts one another in influencing firm financial

performance. We propose that the financial impact of

such configurations is contingent on the country's insti-

tutional setting. In Liberal Market Economies (LMEs),

where firms face strong pressures to achieve short-term

goals, the combination of MEPs and CSR creates share-

holder value, particularly when firms engage in inter-

nally oriented CSR projects. Conversely, in Coordinated

Market Economies (CMEs), where institutions already

curb short-term demands, the combined adoption of

MEPs and CSR initiatives destroys shareholder value,

Received: 19 May 2018 Revised: 5 November 2019 Accepted: 20 December 2019 Published on: 5 February 2020

DOI: 10.1002/smj.3132

Strat. Mgmt. J. 2020;41:891–920. wileyonlinelibrary.com/journal/smj ©2020 John Wiley & Sons, Ltd. 891

particularly when this CSR is external. Overall, our

study enhances understanding of the institutional com-

plementarity between corporate governance and CSR.

Managerial summary: This study examines how two

organizational practices, managerial entrenchment pro-

visions (MEPs), and corporate social responsibility

(CSR), combine between them to improve or reduce

firms’financial success. Our analysis demonstrates that

institutional framework has a strong influence on their

combined effect. When the institutional context sup-

ports solutions to coordination problems among eco-

nomic agents through market-based arrangements,

MEPs allow the implementation of strategies directed

to promote long-term investments and relationships. In

this case, MEPs when paired with CSR allow generating

intangibles that contribute to create shareholder value.

Contrarily, in frameworks with coordination mecha-

nisms based on nonmarket arrangements, the joint

adoption of MEPs and CSR destroys value by increasing

the power of managers and blockholders to extract

rents at the expense of firms’minority shareholders.

KEYWORDS

comparative capitalism, corporate governance, corporate social

responsibility, managerial entrenchment, shareholder value

1|INTRODUCTION

Considerable strategy research is concerned with how to ensure that senior management acts in

the benefit of firm shareholders. Corporate governance scholars, for example, studied the degree

to which governance provisions, such as the takeover market, prevent managers from engaging

in activities that fail to maximize stakeholders’long-run value (Aguilera, Desender, Bednar, &

Lee, 2015). Also, the corporate social responsibility (CSR) literature developed a corporate control

perspective (Filatotchev & Nakajima, 2014), according to which firms’CSR constitutes a form of

self-regulation that limits the set of acceptable actions that corporations can adopt when inter-

acting with their stakeholders (Matten & Moon, 2008; Scherer & Palazzo, 2011). Either through

the adoption of corporate governance provisions or through the engagement in CSR, scholars

predicted less room for managerial opportunism and higher incentives for generating shareholder

value. The empiricalevidence, however, produced mixed findings regarding the influence of take-

over threats, CSR, and othergovernance arrangements on firm value.

Some research attributed this inconclusive evidence to the independent evaluation of the

impact of each provision, neglecting the configurational relationship of these arrangements as

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