We empirically investigate how U.S. firms’ corporate social responsibility (CSR) engagement affects CEO relative leverage. Using a sample period from 2006 to 2008, we find that CSR engagement positively affects CEO relative leverage after controlling for various firm and board characteristics. This finding suggests firms that are more socially responsible pay out debt-like compensation to motivate CEOs to resolve conflicts between stakeholders. We also find a positive association between employee relations and CEO relative leverage. Using 2SLS and PSM methods, we discover that our results are robust to the correction for endogeneity. Overall, consistent with Cai, Jo, and Pan (2011), our results support the conflict–resolution hypothesis based on stakeholder theory rather than the CSR overinvestment argument based on agency theory.

JEL Classification: G32, G02, M52

Keywords: Corporate social responsibility, CEO relative leverage, Employee relations, Conflictresolution