Stakeholder engagement as a sustainable development strategy: Managerial entrenchment for cross-shareholdings

We analyze the effect of managerial entrenchment on firms' corporate social responsibility (CSR) activities. We use the cross-shareholding ratio and the stable shareholders ratio, which characterize the Japanese corporate system, as proxy variables for managerial entrenchment. We choose two CSR/environmental, social, and corporate governance scores: those for vendors targeting only Japan and those for vendors targeting the entire world. The results show that increases in the cross-shareholding and stable shareholder ratios decrease CSR activities. These results are consistent with the view that CSR activities are considered a costly investment for managers rather than a type of agency cost. Finally, we reveal that after the enactment of Japan's Corporate Governance Code in 2015, the cross-shareholding and the stable shareholder ratios have not significantly affected CSR activities and that foreign institutional investors have promoted CSR activities.