Corporate social responsibility, overconfident CEOs and empire building: agency and stakeholder theoretic perspectives

We draw on agency and stakeholder theories to examine the corporate social responsibility (CSR) engagement–empire building relationship. Our results, using a US sample for the period 1996–2015, show that CSR is associated with lower empire building, consistent with stakeholder theory. These results are robust to tests of endogeneity, alternative proxies for CSR and empire building, and the use of alternative methods. Further, the negative CSR engagement–empire building relationship is found to be weaker for firms with overconfident CEOs, consistent with behavioural traits theory. More interestingly, we find that overconfident CEOs with high CSR engagement tend to acquire more, especially in firms with low CEO ownership, consistent with agency theory. Finally, the valuation impact of CSR in acquisitions is contingent on CEO overconfidence: CSR increases the value of acquisitions when the CEO is less overconfident but destroys the value when the CEO is overconfident.