Engaging Employees for the Long Run: Long-Term Investors and Employee-Related CSR
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ORIGINAL PAPER
Engaging Employees for the Long Run: Long‑Term Investors and Employee‑Related CSR Alexandre Garel1 · Arthur Petit‑Romec2 Received: 13 October 2018 / Accepted: 2 July 2020 © Springer Nature B.V. 2020
Abstract This article explores whether and how long-term investors influence non-executive employees’ incentives. While long-term investors benefit from long-term investments that create value over time, employees tend to be averse to long-term investments. We conjecture that long-term investors foster employee-related CSR to motivate employees to engage in long-term investment projects. Consistent with this prediction, we find that long-term investor ownership is a strong driver of employee-related CSR. Additional analyses indicate that this result is not driven by self-selection or reverse causality. We further show that employeerelated CSR leads to increased long-term investments (R&D expenses and corporate innovation). Overall, our findings highlight that employee-related CSR is an important channel through which long-term investors encourage long-term investments. Keywords Corporate social responsibility · Employee governance · Investment decisions · Institutional investors JEL classification G23 · G32 · IJ28 · M14
Introduction Many academics, corporate leaders, and policy-makers have expressed strong concerns about short-termism. In particular, short-termist pressures and the so-called quarterly capitalism may push managers to sacrifice long-term investments, innovation, or even financial stability. Several observers have argued that the solution to the threat posed by short-termism lies in the construction of a shareholder base of long-term committed investors (e.g., Beyer et al. 2014; Bolton and Samama 2013; Veldman et al. 2016). Consistent with this argument, previous literature shows that shortterm investors influence managers to pursue corporate policies that destroy firm value (e.g., Bushee 1998; Chen et al. 2007; Gaspar et al. 2005; Stein 1996). On the contrary, the presence of long-term investors leads companies to improve * Arthur Petit‑Romec [email protected] Alexandre Garel [email protected] 1
Audencia Business School, 8 Route de la Jonelière, 44312 Nantes, France
TBS Business School, 1 Place Alfonse Jourdain, 31068 Toulouse, France
2
decision-making, to invest for the long run, and to innovate more (e.g., Aghion et al. 2013; Derrien et al. 2013; Edmans 2009; Harford et al. 2018). While long-term investors play a crucial role in deterring short-termism and pushing companies to invest for the long run, our understanding of the channels through which they have such an influence is more limited. Previous literature posits that long-term investors influence the design of CEO incentives including pay-for-performance sensitivity, CEO turnover, and long-term oriented compensation (Aghion et al. 2013; Cadman and Sunder 2014; Gao et al. 2017; Hartzell and Starks 2003). There is, however, no evidence on whether and how long-term investors influence the incentives of non
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