CEO education background: Effects on the
corporate social performance of MNEs
University of Groningen Faculty of Economics and Business
Author: Dosescu Tiberiu Valeriu Student number: S2967111
Coordinator: Dr. L. Ge
Abstract
Although the important role that CEOs play in the CSR practices of companies has been proven and discussed in the past, there seems to be a lack of exhaustive scientific research on how education influences and shapes the development of those CEOs in relation to the CSR performance of companies. Building on previous research, we propose a framework to evaluate the educational background of CEOs based on three indicators: the ranking of the universities the CEO graduated from, the education level and international education experience of the CEO. Applying the Upper Echelon Theory and cognitive learning theories, we examine the effect that a CEO’s education background has on the CSR performance of MNEs. We hypothesize that CEOs who score high on the three indicators presented above will show better overall corporate CSR performance. The sample used in this research consists of companies and CEOs from the S&P 500 index from the BoardEx database, while data regarding CSR performance were collected from two independent sources, namely CSR Hub and Eikon by Thomson Reuters. This performance is measured using two scores: ESG score and CSR score. In this study, we found that there is no clear positive relationship between the indicators and the CSR performance of companies however, more research is needed in this field.
Table of Contents
Abstract 2
1. Introduction 4
2. Literature review and hypothesis development 8
2.1. Education and Upper Echelon Theory 8
2.2. Education institutions and CSR 10
2.3. Level of higher education and CSR 12
2.4. International education experience and CSR 14
2.5. The interaction effect between education institutions, level of education and international education experience of CEOs on CSR performance 16
3. Methodology 18
3.1. Data and sample 18
3.2. Dependent variables 19
3.3. Independent variables 20
3.4. Control variables 22
3.5. Data analysis 23
4. Results 24
4.1. Descriptive statistics and correlation 24
4.2. Pearson correlation - Tables 6 and 7 27
4.3. Regression 28
4.4. CEO education and CSR score 28
4.5. CEO education and ESG score 29
4.6. Table 8 – Regression results 30
5. Discussion 31
5.1. Contributions 34
5.2. Limitations and future research 36
6. References: 38
7. Appendices 51
7.1. Appendix A – Variables and regression equations 51
1. Introduction
The concept of Corporate Social Responsibility (CSR) has been a popular topic in recent years amongst the researchers due to the increased pressure on companies, from both governments and the public, to act for the benefit of society (Wagner, Lutz, & Weitz, 2009). The definition of CSR has created heated debates amongst the scholars as the term has not been used consistently which blurred its meaning (Fifka, 2009). Furthermore, the addition of similar concepts in nature such as corporate social performance only deepened the problem. In order to avoid any confusion, we will use the definition by Aguinis (2011) which defines CSR as “context-specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social, and environmental performance”. Moreover, CSR is used as a non-financial performance indicator (KPI) of a firm regarding customers, employees and the environment. This paper uses two main indicators regarding firm social performance: CSR and ESG.
Environmental, Social and Governance practices or ESG is also a non-financial indicator that focuses on the three most important factors regarding sustainability and societal issues for a company. A more formal definition of ESG is as follows: “issues referring to extra-financial material information about the challenges and performance of a company on these matters” (Bassen & Kovacs, 2008). This indicator is instrumental in differentiating amongst firms and a great tool for assessing risks and opportunities.
Corporate social performance (CSP) is defined as a "configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm's societal relationships" (Wood, 1991). In essence, CSP reflects the level of CSR performance of a firm and it is a way of showing how a given company is able to live up to the expectations imposed by society (McGuire et al., 2003). This is not to say that firms that have high CSP are not profitable or don’t succeed. On the contrary, companies that achieve the expectations of societal stakeholders gain legitimacy (Handelman and Arnold, 1999), improve firm reputation and image (Brown and Dacin, 1997; Turban and Greening, 1996) and develop important capabilities (Sharma and Vredenburg, 1998). Considering the beneficial outcomes that result from CSR for both society and firms, more emphasis should be put on the aspects that influence it.
(MNE) in a manner that the effect of the individual on such actions has been ignored for the most part (Post et al., 2002; Wood et al., 1986). Yet, the top managers and Chief Executive Officers (CEO) play perhaps the most important role when it comes to CSR (Quazi, 2003; Swanson, 2008) as it is virtually impossible to have corporations that are socially responsible without CEOs and directors dedicated to such actions (Hunt et al., 1990; Wood et al., 1986). The CEOs are the ones that decide on how CSR issues are addressed and how the commitment to ethics and social responsibility is spread and encouraged in the company (Waldman et al., 2006). The idea that the top managers or the upper echelons have a crucial say in the way MNEs perform has been proven for a long time by scholars (e.g., Hall, 1977; Hannan and Freeman, 1977). This idea gave birth to the so-called “Upper Echelon Theory” which suggests that the more intricate and convoluted a problem is, the higher the importance of personal characteristics of the decision maker/CEO is (Hambrick and Mason, 1984). A lot of studies have confirmed the relationship between top management teams (TMT) and firm performance, however, not enough have looked at the relation between upper echelon characteristics and CSR.
Knowing how important a CEO is to CSR and CSP, corporations face a lot of pressure and risk when it comes to choosing a new CEO. Perhaps the decision on which CEO to hire is one of the most difficult decisions a company board can make. When evaluating candidates, the board has to process and take into account a plethora of factors such as: personality, skills, experience, honesty, etc. All these factors are extremely difficult to rightly determine and compare amongst applicants due to their intangible nature. Amongst all the factors, education is perhaps the only one that is certain and verifiable (Tonello, 2011). The board can use the notoriety of an education institution, the difficulty of obtaining a higher degree such as master’s or Ph.D., or even the field of study in order to determine the quality of a certain candidate and even estimate future performance regardless of when these accomplishments were attained.
conditions in the Chinese factories where iPhones are produced (Watch, 2012). Apple is a huge company and its CEO is a highly educated individual and yet this seemed to have no effect in this situation. This goes against some of the prior studies made and asks for more in-depth research on the exact relationship between CEO education background and the CSR performance of companies.
The relationship between CEO education background and firm performance is multifaceted and can be approached from many angles. For example, Tonello (2011) indirectly studies the relation between CEO education and firm performance by looking at CEO turnover. This can happen in part due to weak firm performance or conflicts between the board of directors and CEOs. Furthermore, Saidu (2019) directly examines the influence that CEO education has on firm performance by quantifying three indicators: market price of the equity, return on assets (ROA) and return on equity (ROE). The same connection is indirectly made by Le and Kroll in 2017 by looking at how CEOs' profile and international experience (IE) affect strategic change and firm performance. In their paper, IE is partly measured through work experience, which in itself is a result of informal learning and thus education. When measuring firm performance, they used lagged industry adjusted return to shareholders three years after the CEO started together with the years where strategic change was measured. Ma et al. (2019) underline a research gap regarding the influence of CEO’s background characteristics (education) on CSR; a gap which caught the attention of some academic circles but with limited results so far (Aguinis & Glavas, 2012). This paper by Ma et al. (2019) examines the influence of CEO education background on CSR performance at a regional level and only focusing on Chinese firms.
A high level of education for the CEO was found to be positively correlated with higher firm performance (Rajagopalan & Datta, 1996). Moreover, a study made by Darmadi in 2013 showed that not only the education level is important but also the educational qualifications of the CEO. The same study revealed that CEOs that graduated from a prestigious university performed significantly better than those who didn’t. This idea is supported by Machin and McNally (2007) which state that attending elite institutions has some effect on the person or in this case the CEO. However, the evidence is not conclusive and highly debated. This pointed us to evaluate three main indicators when it comes to the education background of a CEO.
separate indicators) that measures the effect an education institution has on the individual in relation to CSR.
Next, we look at which higher education level the CEO managed to attain, for example: bachelor’s, master’s, master’s in business administration (MBA) or PhD. Higher education has been found to not only benefit the individual in terms of monetary returns when employed but also personal benefits such as moral and emotional development, citizenship and cognitive learning (Bowen, 1997). Such qualities are crucial for a CEO especially when it comes to CSR involvement and performance. We create a score that measures the education level of a CEO.
Lastly, as globalization has emerged all over the world, the international experience of managers has become increasingly relevant and sought after by companies. CEOs that possess vast knowledge of foreign markets and cultures have unique skills that allow firms to expand and thrive internationally (Herrmann and Datta, 2005). During the process of education, international experience is gained by studying abroad in one or more different countries. We use the term “International Education Experience” (IEE) when referring to the level of international experience of a CEO gained during the education process. IEE is conceptually different from normal international experience (IE) which refers to the experience gained by working in foreign countries (Lee & Kroll, 2017).
From what is mentioned above we can see that firm performance has not been quantified through a non-financial indicator like CSR and ESG scores at a global level. This paper fills in this gap by looking at the relationship between CEO education background and CSR performance of a firm using the CSR and ESG scores at a global level. Thus, the question we are answering in this study is:
“How does the education background of a CEO (graduating from a higher-ranking university, level of education and international education experience) influence the CSR performance of the top S&P 500 companies?”
experience gained during the education process abroad. To study this effect, we perform an empirical analysis using CEOs and companies from the S&P 500 index. The results of this study aim to narrow the existing gap in the literature and provide support for future researchers.
2. Literature review and hypothesis development
2.1. Education and Upper Echelon Theory
The Upper Echelon Theory (UET) suggests that the personal characteristics of top managers or CEOs have a powerful impact on the management decisions of a company (Hambrick and Mason, 1984). Moreover, studies showed that the higher the complexity of a decision, the more important the managerial characteristics such as age, education and tenure are. These decisions will not only affect the firm’s performance and strategy (Nielsen 2010) but have the potential to impact stakeholders outside of the organization. UET recognises that top managers and CEOs are rationally bounded and make decisions based on their psychological, social and cognitive abilities (Ting et al., 2015).
According to the UEP, the cognitive ability of managers is a gradual process when it comes to decision making and planning for the future. As stated before, CEOs have limited vision and it is virtually impossible for them to consider all the issues regarding both the internal and external environment of a firm. Moreover, even for the issues that are looked at, the CEO will only pay attention to particular observations. With that in mind, the UEP was further developed and split the CEO characteristics into psychological and demographic background characteristics (Hambrick and Mason, 1984). The demographic characteristics are objective, easy to understand and can be used to readily explain psychological factors like values and beliefs. Scholars often use these characteristics of CEOs such as: educational background, age, gender, experience, etc., in order to indirectly infer various traits of a CEO. The abilities of a CEO represent the so-called “CEO wisdom” (Saidu, 2019) which can be acquired during the education process of the CEO but also from past work experience.
process for an individual as their education level will determine their values, cognitive abilities and others. The cognitive learning and innovation abilities of a CEO are closely linked to their education background and influence their decision-making capabilities when faced with intricate problems such as CSR issues. A CEO needs to take into account multiple points of view and make sure that all the parties involved are listened to and taken care of. A task like this involves knowledge from all fields such as business, geopolitics, economics and others. The CEO should be able to recombine all the knowledge he/she possesses into innovative ideas in order to tackle the problems that arise. This is highly valuable in the field of CSR as education influences the beliefs and values of a CEO which will be reflected in the CSR practices of their organization. A CEO that is highly educated is better able to take into consideration the demands of stakeholders and recognize opportunities and threats in order to sustain a balanced CSR level (Yang et al., 2019). Moreover, highly educated CEOs also have a high economic status which generally will push them to pursue more socially responsible goals and focus on the ecological environment.
However, education influences more than CSR practices. According to UET, CEO education influences many performance indicators of firms. A study by Smith et al. (1994) found that a company’s return on investments (ROI) was positively correlated with the educational diversification of the managers. Moreover, growth in market share and profitability were also observed to be closely and positively related to the average education level of top managers and CEOs (Hambrick et al., 1996). Other performance indicators such as: earnings per share (EPS), return on assets (ROA) and cumulative returns were also strongly correlated with the education degrees held by CEOs (Cheng et al., 2010). In the context of the United States, studies showed that companies with better fund performance were run by managers who attended institutions with higher SAT performance (Chevalier & Ellison, 1999). Furthermore, it was also revealed that managers that graduated from top business schools and held MBA degrees were more likely to display considerably better performance compared to those that did not get an MBA degree or attended lesser universities (Gottesman & Morey, 2006).
Fredrickson, 2001). The level of education a CEO possesses has a positive impact on their strategic planning abilities (Mcmullan and Long, 1987) and can strengthen the firm’s openness to change (Classen et al., 2012). A high level of education allows the manager or CEO to better identify external knowledge which is crucial for the firm's absorptive capacity (Roach and Sauermann, 2010). This ability to process information will enable the CEOs to face the ambiguity that arises with changes in innovation. Due to the complex and tacit nature of innovation, CEOs that have a higher ability to process information will be able to identify and manage the required knowledge which in turn will increase the absorptive capacity of the firm.
2.2. Education institutions and CSR
The degree of education of a CEO can be analysed from two different perspectives: one is by looking at the ranking of the higher education institution a CEO graduated from (Cortese, 2003) and the other by evaluating the level of education obtained (Tonello, 2011). Higher education institutions prepare professionals who will lead the way in the future based on the skills and knowledge gained during the education process. These institutions have the power and freedom to develop new mentalities and experiment with new concepts that will promote sustainable living (Cortese, 2003).
Ma et al. (2019) also consider a classification of the degree of education of a CEO with 5 categories based on the level of education a CEO has achieved at various educational institutions. His classification also does not conform to our point of view. Moreover, we will take into account only the higher education institutions in contrast with Ma et al. (2019) who consider all types of education institutions together (primary and secondary school). We chose to make this differentiation as the primary and secondary levels of education do not have a profound effect on the CEO by the time he/she achieves this position. The tertiary level is vastly more important considering that most of the knowledge employed by the CEO when working is gained during this stage.
The concept of CSR can be described as a type of self-regulation mechanism imposed by companies aiming to improve business practices to benefit society (Sheehy and Benedict, 2015). CSR has become more relevant in recent times as more pressure is placed on companies to be socially responsible (Wagner, Lutz, & Weitz, 2009). Studies have shown that CEOs have a crucial role in the social performance of companies (Quazi, 2003; Swanson, 2008) as they are the ones that determine how CSR issues are handled and which measures are deployed (Waldman et al., 2006). This entails that the characteristics of CEOs such as education or experience are critical, and studies have shown that highly educated CEOs show better overall performance.
better results in general (Roberts & Thompson, 2007; Gibbons, Perkins & Neumayer, 2013). Rankings have also been found to be more valuable for postgraduate students who use the ranking of the institutions they graduated from when getting employed in the labour market (Hazelkorn, 2012). This suggests that employers in the labour market consider that graduates from elite universities have superior abilities and a broader range of capabilities. However, there is no consensus about this and for example, in the US the ranking of universities is not a decisive factor for students (McDonough et al., 1998).
The rankings are also important for CEOs when it comes to their effectiveness in managing firms and CSR involvement. This is supported by Robbert and Thompson (2007) in their study where there is a strong correlation between the relative position of a university and the quality of students that were admitted. According to the Upper Echelon Theory (UET), the quality that we talked about earlier will be reflected in the firm's performance and CSP. The capabilities and ethical values of the CEO will have the most impact when it comes to crucial firm strategic decisions regarding CSR (van der Zee & Swagerman, 2009). As mentioned previously highly educated CEOs tend to have a higher economic status as well which leads them to pursue social and environmental goals rather than money or profit. This occurs when individuals can satisfy all the basic needs in life and strive for more social acceptance or self-actualization according to Maslow's pyramid of needs. Thus, we propose the following hypothesis:
Hypothesis1: “CEOs who have graduated from higher-ranking universities will show better corporate CSR performance”
2.3. Level of higher education and CSR
Starting from the idea of dividing the educational background of a CEO in two concepts: the first being the ranking of institutions from which the CEO graduated and the second being the level of education obtained by the CEO (Bachelor’s, Master’s, MBA and Ph.D.), we will try to further investigate the relationship between the level of education and CSR performance.
separately as a CEO with an MBA degree will perform differently than one with an engineering master’s degree. Usually, an MBA program underlines the economic perspective and provides the students with a simplified world view without ethical symbols (Slater & Dixon-Fowler, 2010). This infers that business students are considerably less CSR focused than other students (Useem, 1989). However, this might not be caused by the MBA program itself but might be caused by a self-selection bias where students that choose to follow an MBA program are less ethical to begin with (McCabe, Dukerich & Dutton, 1991). It might also be the fact that MBA students are taught during the program the normative expected utility theory (von Neumann & Morgenstern, 1944) which was found to increase self-centered behaviour (Jones et al., 1990). In reality, the CEOs and executives that got an MBA degree might or might not have a behaviour like the one presented above. As a matter of fact, prior studies have found that higher business education (MBA) increases the belief of students that corporate sustainability is a major part of firm performance (Neubaum et al., 2009). Following MBA programmes might make CEOs more aware of CSR through business cases and theories studied during the courses. This means that CEOs with MBA degrees could choose to maximise profits through socially and environmentally responsible ways.
Due to its difficulty, not many researchers have ventured to thoroughly analyze the benefits of higher education for an individual, in particular for CEOs (McPherson & Shapiro, 1997). William Bowen published a paper in 1977 where he explains what was known at the time regarding the returns for an individual that achieved a high level of education. He mentioned that an individual not only generates higher economic returns but also non-economic ones such as emotional and moral development, cognitive learning and what he calls “neighbourhood effects” which refers to the economic growth of the society.
Hypothesis 2: “CEOs who have a higher level of education will show better corporate CSR performance”
2.4. International education experience and CSR
According to the following quote from Ma et al. (2019): “When the CEO has studied or worked abroad …”, we propose the following distinction in which the international experience of a CEO (IE) is split between the international experience gained during the education process abroad (IEE - International education experience) and the international experience gained from working in a foreign country (IWE - International work experience). When combining these two you get the complete international experience. These two concepts differ both in terms of the actual real-life experiences that the individual/CEO goes through as well as the effect these experiences have on the mentality and psychology of the person. IEE occurs at an earlier stage when the individual is still young and inexperienced and has a more profound effect on him/her. Young adults and especially teenagers don’t have all the mental models and moral schemas fully developed and thus can be more easily influenced. This means that the changes that arise from IWE take longer to be internalized and the stimuli required need to be more intense. It is possible for both types of IE to occur at the same time when the individual chooses to study and work abroad. However, generally, first the person gains IEE during studies and after graduation and work experience abroad the individual gains IWE as well.
(formal, informal and non-formal) and the strategies used by MNEs when entering a foreign market (for example: franchising, licensing, greenfield approach, etc.) (Laufs et al., 2016). When TMTs are diverse and international, companies are better able to identify expansion opportunities such as FDIs or acquisitions. The knowledge that those TMT managers possess will be used before entering the market and represents a valuable resource for making decisions and implementing them (Nielsen, 2010). IE is valuable both at the TMT level and at the CEO level as in both cases it has a significant positive effect on the level of internationalization (Rivas, 2012).
The influence of IE on a CEO’s development can be explained by the literature on social and cognitive learning (Bandura, 1977; Endicott et al., 2003; Kolb, 1984; Piaget, 1955). When a CEO is exposed to a foreign environment, he or she experiences cognitive dissonance which creates a conflict between the environment and the predetermined structures and cognitive schemas. This conflict creates an emotional discomfort for the CEO which triggers an informal learning process and the acquisition of new cognitive competencies. These changes that a CEO goes through when exposed to a foreign environment will be reflected in his/her actions as a leader and will have profound ramifications for the firm. The longer a CEO spends working in a foreign country, the greater the range of experiences they have and thus the richer their knowledge is going to be (Godart et al., 2015). CEOs need to spend some time immersed in a foreign culture in order to gain tacit knowledge that is domain-specific and improve their cognitive capacity (Maddux & Galinsky, 2009). A larger cultural distance between the home and host country of a CEO will result in greater competencies and international knowledge (Godart et al., 2015). Moreover, the knowledge and competencies gained from working in culturally distant countries are considerably more useful compared to the ones gained from countries that have a low cultural distance as they entail a higher level of ambiguity and social complexity (Leung et al., 2008).
IWE there are both similarities and differences; the main difference is that a person with IWE also has a certain level of responsibility which depends on the size of the firm. However, both a person who experiences IEE and a person who experiences IWE goes through a culture shock which depends on the number of foreign countries and tenure of education/work.
Above we recalled the psychological phenomena of IE from Le and Kroll (2017), Bandura (1977); Endicott et al. (2003); Kolb (1984) and Piaget (1955) because it describes the essence of the psychological basis of IEE. Based on the discussion above we propose the following hypothesis:
Hypothesis 3: “CEOs who have international education experience will show better corporate CSR performance”
2.5. The interaction effect between education institutions, level of
education and international education experience of CEOs on CSR
performance
We proposed that CEOs who graduated from higher-ranking universities will show better corporate social performance. As discussed previously, education institutions prepare students for the future and have the power to create new ways of thinking and promote sustainability (Cortese, 2003). Some of these students will become CEOs of large multinationals and will determine how CSR practices are implemented as CEOs have a pivotal role in these decisions (Quazi, 2003; Swanson, 2008; Waldman et al., 2006).
Moreover, we suggested that a CEO with a higher education level will show better CSR performance compared to ones with a lower level. Studies have shown that the learning environment in higher education plays a critical role in the moral development of individuals (Lindt et al., 1985). In the context of CSR, business students with an MBA level believed that sustainability is crucial for firm performance (Neubaum et al., 2019) and would pursue socially responsible ways of doing business.
generate new ideas and innovative solutions that are more environmentally and socially responsible (Lee & Kroll, 2017).
However, these concepts, besides individually influencing the corporate social performance of companies through the CEO, can perhaps interact with each other and create a stronger effect. Thus, we will study the impact these combined effects will have on the CSR performance of MNEs. We reason that if a CEO has graduated from higher-ranking universities and has international education experience, he/she will be better equipped in terms of knowledge and abilities to run the company and thus having better CSR performance. The same can be said about a CEO who has a high level of education and international education experience or graduated from a higher-ranking university. Taken together rather than individually, these concepts might be better able to reflect the total education background of a CEO and thus reveal a more profound positive impact on the CSR performance of firms. With all of this in mind, we propose the following hypothesis:
Hypothesis 4: “The interaction between the ranking of universities a CEO graduated from, the level of education and the international education experience of a CEO will positively impact corporate CSR performance”
3. Methodology
3.1. Data and sample
In this paper we are studying the influence CEO education has on the corporate social performance of the top S&P 500 companies. The decision to select only the MNEs present in the S&P 500 index was made because it encompasses the largest 500 companies in terms of market capitalization globally. These companies are very well known and have the funds to invest in CSR activities making them a suitable sample for this study. When it comes to CEO selection, we looked at the appointed CEOs for the year 2017. The decision to focus on the year 2017 was made because of the data availability regarding both CEO education information as well as company information such as CSR and ESG scores. Both scores were collected from publicly available databases for the year 2017. We will discuss in detail about this later in the study. The CSR score was sourced from an online database called “CSR Hub” which is a platform that rates companies based on their overall CSR performance while the ESG score was obtained from the Eikon database developed by Thompson Reuters. The ESG score is used to assess the capabilities of a company’s management using social, environmental performance and corporate governance data (Galbreath, 2013).
Due to missing data regarding the educational background of the CEOs and the CSR score of companies, only 200 observations remained for the first two models. Within this sample there were no outliers or observations that would skew the test results. For Model 1 and 2 the 200 observations are divided as follows: 171 observations are from North America, 14 observations are from the European Union, 5 are from the United Kingdom and 10 are from various countries from the rest of the world. Thus 85.5% of the observations are localized in one geographical region which can be explained by the data source, namely the S&P 500 company ranking. As mentioned earlier this ranking includes the largest 500 companies in terms of market capitalization and most of these companies are located in the United States and Canada.
For Models 3 and 4 there are a total of 127 observations. This number is lower compared to the first models as the ESG information is less abundant and harder to find. Outliers were not detected for these models either. Of the 127 total observations, 101 observations are from North America comprising 79.5% of the total sample size, 15 observations are from the European Union, 5 are from the United Kingdom and the rest of 6 are from countries from the rest of the world. As mentioned above this US-centric sample can be explained by the distribution of companies in the S&P 500 company ranking.
3.2. Dependent variables
For our study, we used the corporate social performance of companies for which the CEOs work as our dependent variables. When looking for ways to measure corporate social performance we came across two approaches: CSR scoring and ESG scoring.
CSR score is a non-financial performance indicator of a firm regarding customers, employees and the environment. The score was sourced from the CSR HUB online database which can be accessed at “www.CSRhub.com”. CSR Hub is a performance rating tool with the objective to “provide consistent ratings of Corporate Social Responsibility (CSR) performance for as broad a range of companies as possible.” (CSRHUB Website, 2020). This source of information has been used by Hughey and Silkowsky in their paper from 2012 where they test if companies that have better public data availability have better CSR performance and reputation.
on publicly available information (news articles, annual reports, NGO websites and more) (Eccles et al., 2014). Moreover, due to the availability of data the sample containing the ESG score is smaller than the one with CSR score.
We needed to determine if the two scores are different enough to construct a separate analysis around them. In order to determine that, we decided to perform a correlation test between the two using a sample size of 127 for both CSR and ESG as this is the number of companies we could find with both scores. The result of the correlation is 0.54 which is below the 0.7 threshold (O’Brien, 2007). Therefore, it is worthwhile to have different models when performing the linear regression.
3.3. Independent variables
For the scope of this study, we selected three independent variables that are meant to measure the education background of CEOs: the score based on the university ranking, the score based on the level of education of the CEO and the international education experience score of the CEO. All variables can be found in Table 1 in appendix A.
The first independent variable refers to the higher education institutions such as: universities and colleges. For every institution that a CEO finished, we will consider the ranking of that institution in the order that the CEO finished it and with that compute the score using a ranking aggregation method. Using the multicriteria analysis algorithm (Phillips et al., 2009) we compute the institution score for every CEO by giving it a weight (1, 2, 3, ..., n). The following formula (Formula 1) was used to calculate the score:
Formula 1: 𝑉𝑉𝑖𝑖 = � 𝑤𝑤𝑗𝑗 ∙ 𝑞𝑞𝑖𝑖𝑗𝑗 𝑚𝑚 𝑗𝑗=1 𝑉𝑉𝑖𝑖 = 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑈𝑈𝑠𝑠𝑠𝑠𝑈𝑈𝑈𝑈 𝑠𝑠𝑜𝑜 𝑎𝑎 𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖; 𝑈𝑈 = 𝑈𝑈𝑎𝑎𝑠𝑠𝑠𝑠𝑠𝑠𝑈𝑈 𝑈𝑈𝑈𝑈𝑠𝑠𝑈𝑈; 𝑠𝑠 = 1,2, … , 𝑈𝑈 (𝑈𝑈 𝑈𝑈𝑈𝑈 𝑈𝑈ℎ𝑈𝑈 𝑠𝑠𝑎𝑎𝑚𝑚𝑈𝑈𝑠𝑠𝑚𝑚𝑠𝑠 𝑈𝑈𝑚𝑚𝑠𝑠𝑛𝑛𝑈𝑈𝑈𝑈 𝑠𝑠𝑜𝑜 𝑚𝑚𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑎𝑎 𝐶𝐶𝐶𝐶𝐶𝐶 𝑔𝑔𝑈𝑈𝑎𝑎𝑔𝑔𝑚𝑚𝑎𝑎𝑈𝑈𝑈𝑈𝑔𝑔 𝑜𝑜𝑈𝑈𝑠𝑠𝑠𝑠); 𝑤𝑤𝑗𝑗 = 𝑤𝑤𝑈𝑈𝑈𝑈𝑔𝑔ℎ𝑈𝑈 𝑠𝑠𝑜𝑜 𝑠𝑠𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑎𝑎 𝑗𝑗; 𝑗𝑗 = 1, … , 𝑈𝑈𝑎𝑎𝑠𝑠𝑠𝑠𝑠𝑠𝑈𝑈 𝑈𝑈𝑈𝑈𝑠𝑠𝑈𝑈; 𝑞𝑞𝑖𝑖𝑗𝑗 = 𝑈𝑈𝑠𝑠𝑈𝑈𝑠𝑠𝑎𝑎𝑠𝑠𝑈𝑈𝑠𝑠𝑈𝑈𝑔𝑔 𝑈𝑈𝑎𝑎𝑠𝑠𝑚𝑚𝑈𝑈 𝑗𝑗 𝑠𝑠𝑜𝑜 𝑈𝑈ℎ𝑈𝑈 𝑚𝑚𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑈𝑈𝑎𝑎𝑈𝑈𝑟𝑟𝑈𝑈𝑈𝑈𝑔𝑔 𝑜𝑜𝑠𝑠𝑈𝑈 𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖
have used QS or Quacquarelli Symonds (Widodo et al., 2020) as it is the biggest provider of analytics and services in the global higher education sector. Their portfolio has become the most popular source of comparative data regarding higher education institutions. This publication is also leading the market in terms of university rankings as it takes into account student surveys (TopUniversities.com, 2020). When a CEO graduates from an institution that is not well ranked or missing, we adjust the score accordingly. With this logic, we determined that when a university is not in the top 1021 universities according to the QS hierarchy, the institution score is penalized by attributing 3000 to the ranking. Moreover, when a CEO did not graduate from more than one institution, the institution score is penalized by attributing 50.000 to the ranking (25.000x2). The values of 3000 and 50.000 can be changed with other values such as 1025, 10.000 or 25.000 but after many simulations, we decided to work with the two values presented above as they best reflect the average CEO.
The second independent variable reflects the level of education of the CEO and is obtained by applying the same multicriteria analysis algorithm (Formula 2) (Phillips et al., 2009). Formula 2: 𝑉𝑉𝑖𝑖 = � 𝑤𝑤𝑗𝑗 ∙ 𝑞𝑞𝑖𝑖𝑗𝑗 𝑚𝑚 𝑗𝑗=1 𝑉𝑉𝑖𝑖 = 𝐿𝐿𝑈𝑈𝑈𝑈𝑈𝑈𝑠𝑠 𝑠𝑠𝑜𝑜 𝑈𝑈𝑔𝑔𝑚𝑚𝑠𝑠𝑎𝑎𝑈𝑈𝑈𝑈𝑠𝑠𝑈𝑈 𝑈𝑈𝑠𝑠𝑠𝑠𝑈𝑈𝑈𝑈 𝑠𝑠𝑜𝑜 𝑎𝑎 𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖; 𝑈𝑈 = 𝑈𝑈𝑎𝑎𝑠𝑠𝑠𝑠𝑠𝑠𝑈𝑈 𝑈𝑈𝑈𝑈𝑠𝑠𝑈𝑈; 𝑠𝑠 = 4 (𝑜𝑜𝑠𝑠𝑚𝑚𝑈𝑈 𝑠𝑠𝑈𝑈𝑈𝑈𝑈𝑈𝑠𝑠𝑈𝑈 𝑠𝑠𝑜𝑜 𝑈𝑈𝑔𝑔𝑚𝑚𝑠𝑠𝑎𝑎𝑈𝑈𝑈𝑈𝑠𝑠𝑈𝑈); 𝑤𝑤𝑗𝑗 = 𝑤𝑤𝑈𝑈𝑈𝑈𝑔𝑔ℎ𝑈𝑈 𝑠𝑠𝑜𝑜 𝑠𝑠𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑎𝑎 𝑗𝑗; 𝑗𝑗 = 1, … ,4; 𝑞𝑞𝑖𝑖𝑗𝑗 = 𝑈𝑈𝑠𝑠𝑈𝑈𝑠𝑠𝑎𝑎𝑠𝑠𝑈𝑈𝑠𝑠𝑈𝑈𝑔𝑔 𝑈𝑈𝑎𝑎𝑠𝑠𝑚𝑚𝑈𝑈 𝑗𝑗 𝑠𝑠𝑜𝑜 𝑠𝑠𝑈𝑈𝑈𝑈𝑈𝑈𝑠𝑠 𝑠𝑠𝑜𝑜 𝑈𝑈𝑔𝑔𝑚𝑚𝑠𝑠𝑎𝑎𝑈𝑈𝑈𝑈𝑠𝑠𝑈𝑈 𝑠𝑠𝑜𝑜 𝑎𝑎 𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖
the following: 1 – Bachelor’s level; 2 – Master’s level; 3 – MBA level; 4 – Ph.D. level with their respective weights (1, 2, 3, 4).
The third and final independent variable indicates the degree of international experience a CEO gained during the education process. We compare the nationality of a CEO with each country in which he/she studied by attributing a “0” when the nationality is the same as the country of study and a “1” otherwise. The score was calculated using a simple heuristic algorithm. Thus, the international education experience score will be equal to the number of foreign countries in which the CEO studied. The score will remain “0” when the CEO does not graduate from a university abroad. For example, if a CEO was born and raised in the United States but completed all their studies in France and Germany, then that particular CEO will have a score of 2. If he/she completed his studies in the United States, then the score will be 0.
In this study, we also include interaction variables that reflect the combined effect of the independent variables presented above on the dependent variable. In general, interaction variables are calculated by multiplying the values of the independent variables present in the study. Studying combined effects rather than isolated effects is valuable in a research paper (Pedhazur and Schmelkin, 1991). We calculated four interaction variables from the three main independent ones. The first three include two-way interactions while the last one includes a three-way interaction and were calculated by multiplying the independent variables. All the variables and regression equations can be found in appendix A.
3.4. Control variables
1987. For example, female business students were found to be more ethics oriented and more likely to take ethical and moral factors into account when making a decision (Gill, 2010).
When it comes to CSR and gender, the results seem to be pretty similar amongst the scholars. There is evidence that confirms that males and females perceive social responsibilities differently and that females are more CSR oriented and more likely to score higher on the social responsibilities scale than males (Panwar et al., 2010; Burton & Hegarty, 1999). Moreover, females were more likely to pay attention to ethical responsibilities (Smith et al., 2001) and consider CSR to be critical both before and after bankruptcy (Elias, 2004). The binary variable was coded in the following way: “1” for a male CEO and “0” for a female CEO.
Age has also been found to play a significant role in corporate social performance. Carlsson & Karlsson (1970) discuss in their paper how as an individual gets older, he/she prefers to establish a set of routines (Chown, 1960), avoids challenging formal rules (Child, 1974) and has a more meticulous decision-making process (Taylor, 1975). Considering these traits, it is safe to assume that older CEOs will be less willing to commit unethical actions thanks to the routines and strict rules put in place by the organization. CEOs and executives that choose to ignore these sets of rules will lose over time as the boards of directors and prosecutors will vote them out. Generally, maturity is usually associated with higher moral development and studies support that. For example, some studies found that age is negatively correlated with students cheating (Haines, Diekhoff, LaBeff, & Clark, 1986) and unethical decisions (Kelley, Ferrell, & Skinner, 1990). The causes for this might be that older individuals require more time in order to make decisions and search for more information or are willing to accept other opinions knowing that they are rationally bounded (Taylor, 1975). This is a continuous variable, and it has the same value as the age in years of the CEO.
3.5. Data analysis
Using the data obtained for this research we performed multiple linear regressions using the StataSE 16.1 software in order to test the proposed hypotheses. However, before performing the regressions we need to test the independent variable for multicollinearity and heteroscedasticity.
unstable and the standard errors become inflated. In this paper, we used the variance inflation factor (VIF) to test for multicollinearity (Ghazali et al., 2018). In general, a value of 10 or below for VIF is considered good and the variables don’t need to be deleted or changed (O’Brien, 2007). After the linear regression was performed the VIF value for all the independent variables in all models was calculated. According to the VIF table multicollinearity is not an issue for the first model as all variables have a value below 10. The information regarding VIF for model 1 can be found in Table 2 in appendix B. Multicollinearity is not an issue for Model 3 as well as all variables have a VIF value below 10 (O’Brien, 2007). The information for Model 3 can be found in Table 3 in appendix B.
Moreover, we need to test for heteroscedasticity. Heteroscedasticity is particularly important when it comes to linear regression. More specifically, the assumption is that the errors of the regression models are homoscedastic across all predicted values for the dependent variable. The heteroscedasticity test establishes whether the ability of the regression model to predict the dependent variable is consistent for all values. We performed the Breusch-Pagan / Cook-Weisberg test in order to determine if heteroscedasticity is a problem. The test resulted in a Chi-squared value of 0.25 and a p-value of 0.969 which means that homoscedasticity is present in our analysis. More about this will be discussed in the next section.
4. Results
4.1. Descriptive statistics and correlation
Presented in Tables 4 and 5 are the descriptive statistics for the variables that were used in the models of this study.
Table 4 – Descriptive statistics Model 1
Variable Obs. Mean St. Dev. Min Max
DV CSR Score 200 66.24 20.5749 14 98
IV University ranking score of a CEO 200 3.1619 2.6916 0.6805 27.6062 Education level score of a CEO 200 1.7447 1.7076 0.25 17.5 International education experience
score of a CEO
200 0.675 1.2027 0 5
CV Age of a CEO 200 50.025 5.6054 34 69
The CSR score has a mean value of 66.24 with a standard deviation of 20.57 and with a maximum of 98 and a minimum of 14. The university ranking score has a mean value of 3.16 and a standard deviation of 2.69 which shows us that the difference in ranking between institutions that the CEOs graduated from is quite significant. The minimum value is 0.68 and the maximum is 27.6. The education level score has a mean value of 1.74 with a standard deviation of 1.70 and a minimum and maximum value of 0.25 and 17.5 respectively. The really small difference between the mean value and standard deviation indicates that the education levels of CEOs can vary drastically from company to company. The international education experience score of a CEO has a mean value of 0.675 and a standard deviation of 1.20 with a minimum of 0 and a maximum of 5.
Table 5 – Descriptive statistics Model 3
Variable Obs. Mean St. Dev. Min Max
DV ESG Score 127 61.3126 15.8649 18 89.2538
IV University ranking score of a CEO 127 3.1837 3.0789 0.6805 27.6062 Education level score of a CEO 127 1.7851 1.9601 0.25 17.5 International education experience
score of a CEO
127 0.8267 1.3219 0 5
CV Age of the CEO 127 50.2519 5.5762 34 69
Gender of the CEO 127 0.9448 0.2291 0 1
We created a Pearson correlation table for Model 1 and 2 (Table 6) using all the variables and the 0.1 significance indicator. We can see that three variables were significantly correlated with the CSR score. Both the interaction variable between university ranking score and international education experience score and the interaction variable between the education level score and the international education experience score were positively and significantly correlated with the dependent variable with a coefficient of 0.1181 and 0.1173 respectively. The gender of the CEO was also significantly correlated with a coefficient of -0.1605.
4.2. Pearson correlation - Tables 6 and 7
Table 6
4.3. Regression
In order to test the proposed hypotheses regarding the role CEO education plays in corporate social performance we performed four regression models the results of which can be observed in Table 8. The first regression model includes the analysis of the effect the independent variables have on the dependent variable CSR score together with the control variables. For Model 2 the analysis also includes the interaction variables together with the independent, dependent and control variables mentioned earlier. The third regression model includes the same independent and control variables as in the first model, but the dependent variable is now the ESG score. Finally, the last model adds the interaction variables on top of the variables present in Model 3.
4.4. CEO education and CSR score
Models 1 and 2 study the effect CEO education has on corporate social performance through the CSR score measurement. From the table, we can see that the control variables from Model 1 are significant and influence the dependent variable with a p-value of 0.03 and 0.007 respectively. The same is true for the second model. Thus confirming previous studies that demonstrated the effect of gender and age on CSR practices in large multinationals. However, no other variables were significantly influencing the CSR score of companies.
This means that for Model 1 we reject the first hypothesis which states that CEOs that graduated from a higher ranking university will show better corporate CSR performance. The second hypothesis is also rejected with the p-value for the education level score of 0.339 and a coefficient of 2.223. Hypothesis 3 regarding CEO’s international education experience and corporate CSR performance is also rejected as the variable is insignificant. From this, no statistically significant conclusion can be drawn but it is also hard to say that there is absolutely no relation between the CEO level of education and the CSR as the coefficient is positive and the p-value is not too high. Finally, hypothesis 4 is likewise rejected as the interaction variables are not significant and do not seem to have an effect.
4.5. CEO education and ESG score
Models 3 and 4 analyse the same effect, the influence of CEO education on corporate social performance, but in these models the performance is measured using the ESG score. From the table we can see that only the age of the CEO is statistically significant with a p-value of 0.064 and a coefficient of 0.472 for Model 3 and a p-value of 0.023 with a coefficient of 0.574 for Model 4. What is interesting here is that the other control variable is not significant and moreover, it seems to have a negative effect in these models. This train of thought goes against prior studies that demonstrated the role gender plays in CSR. Apart from the age of the CEO, there are no other variables that are statistically significant although, same as in Model 1, the international education experience score has a p-value of 0.114 which is very close to the 0.1 threshold. While no significant conclusions can be drawn from this, it does seem that CEO international experience has an influence on corporate social performance.
Furthermore, the first hypothesis is rejected as the university ranking score is not significant but with a positive coefficient of 0.88 for Model 3 and 1.725 for Model 4. The second hypothesis is likewise rejected due to the lack of significance of the education level score of a CEO. We reject the third hypothesis as well, but the situation is not as indisputable as for the first two hypotheses. Finally, we can see that the fourth hypothesis is rejected as well as none of the interaction variables have a significant effect on the dependent variable.
4.6. Table 8 – Regression results
Model 1 Model 2 Model 3 Model 4
DV CSR Score CSR Score ESG Score ESG Score
IV University ranking score of a CEO -1.7107 -0.4373 0.8805 1.7253
(0.258) (0.846) (0.541) (0.435)
Education level score of a CEO 2.2231 3.3694 -2.3404 -1.8287
(0.339) (0.297) (0.280) (0.546)
International education experience
score of a CEO (0.199) 1.6045 -1.6078 (0.578) (0.114) 1.7871 -3.2718 (0.191) University ranking score X
Education level score -0.5140 (0.216) -0.3759 (0.324)
University ranking score X
International education experience score
0.4935
(0.634) (0.574) 0.5038
Education level score X
International education experience score
0.1813
(0.924) (0.449) 1.2465
University ranking score X Education level score X
International education experience score
0.0556
(0.559) (0.998) 0.0001
CV Age of the CEO 0.4667** 0.6787** 0.4729* 0.5745**
(0.037) (0.01) (0.064) (0.023)
Gender of the CEO -19.3903* -20.801** -2.9347 -3.9875
5. Discussion
The main purpose of this paper was to further investigate the effect of CEO education on the social and environmental practices of large multinationals. Previous studies have focused too little on the individual impact on such matters (Post et al., 2002) and in turn studied the large, combined effect of institutions and MNEs (Wood et al., 1986). The proposed research question within this study intended to quantify the educational background of CEOs through the use of three concepts and study the influence of these on the corporate social performance of companies. This study presented four predictions in an attempt to answer the proposed research question. Firstly, we hypothesized that CEOs that graduated from higher-ranking universities will show better corporate CSR performance. Next, we suggested that the education level of a CEO will be positively correlated with the corporate social performance of the firm. Thirdly, we proposed a differentiation between the international experience gained during the foreign education process and the one gained through working abroad. Furthermore, this international education experience (IEE) of CEOs will positively impact the corporate CSR performance of firms. Finally, we decided to research the interaction effect of these three concepts and suggested that in combination they will have a positive impact on the corporate social performance of companies.
legitimacy and capabilities (Handelman and Arnold, 1999; Sharma and Vredenburg, 1998). The purpose of this study was to be the first to examine this relationship at a global level including the largest MNEs in the sample. Furthermore, it contributes to the literature by providing a framework for evaluating the education background of CEOs and making a distinction between international work experience and international educational experience. Additionally, we focus on the top S&P 500 firms and CEOs which indicates that the results of this study are applicable to the biggest firms in the world.
For the second hypothesis, we proposed that the level of education of a CEO will be positively correlated with the corporate social performance of a firm. Previous papers have suggested that academic institutions influence upcoming managers in relation to CSR (Lenssen et al., 2006) and that one’s level of education is positively related to moral development (Jones, Thomas, Agle & Ehreth, 1990). A high education level has also been found to benefit individuals in terms of ethical development, emotional intelligence and economic development (Bowen, 1977). This study puts these claims in the context of CSR performance of CEOs that lead important companies and argues that the benefits of the individual, in this case the CEO, will be reflected in the general corporate social performance of the companies he/she works for. Yet, the results of our analysis do not show any statistically significant relationship between the level of education of a CEO and the corporate social performance of companies. CEOs with a high education level did not perform any better in terms of corporate CSR performance than one with a lower level, thus rejecting hypothesis 2. A potential explanation for this result might be found in the sample used for the study. As discussed previously, the sample was composed of firms from the S&P 500 index, which encompasses mostly companies from North America and Europe. For all models close to 90% of all observations came from Europe and North America. The average level of education has increased very rapidly in Europe and currently, a high percentage of the population have completed some type of tertiary education (OECD, 2014). The same trend can be seen in North America as well, with a significant increase in the number of people that enroll and finish tertiary education (Kehm, 2006). This coupled with the argument presented for hypothesis 1 where we said that companies at this level hire only experienced CEOs who already have positive accomplishments might explain the result.
experience into international work experience and international educational experience. The difference between them is that IEE happens when the individual is young and inexperienced and thus the experience has a more profound effect on the mental models and moral schemas of the person. The results of our study show however that CEO international education experience and corporate social performance of companies are not correlated significantly although the p-values are close to the threshold and the coefficients are positive. This contradicts previous studies that suggest a significant effect. The CEOs that had more education experience internationally did not show better corporate social performance. Interestingly, for Model 3, the significance level of the international education experience score of a CEO was very close to the threshold indicating that perhaps there is some relation between the two. More research should be conducted here. A potential explanation for this is the fact that such large companies present in the sample have entire departments focusing solely on CSR matters. Any decision made individually by the CEO goes through that department and thus his/her influence is minimized.
The final hypothesis combines the first three hypotheses in order to study the interaction effect between the proposed variables and corporate social performance. Here we predicted that CEOs who have graduated from a higher-ranking university, have a higher level of education and have international education experience or any combination of the three will show better corporate CSR performance. Given the fact that the previous three hypotheses were rejected, it comes to no surprise that this one is rejected as well. The interaction between university ranking score, education level score and international education score of a CEO does not affect in any way the corporate social responsibility of firms for both models.
5.1. Contributions
The first contribution this study adds to the existing literature is the framework for evaluating the education background of CEOs. This paper breaks this broad and vague concept into three measurable indicators that objectively reflect the education of a CEO. We decided that these indicators will be aggregated from simpler ones and will be calculated using the multicriteria analysis algorithm (Phillips et al., 2009). This is extremely useful for companies as CEOs have become pivotal in how corporations are run and perceived by the public. They are the most important when it comes to CSR (Quazi, 2003; Swanson, 2008) and socially responsible corporations cannot exist without CEOs that advocate for sustainability and ethical business measures (Hunt et al., 1990; Wood et al., 1986, Waldman et al., 2006). Such CEOs have become more than leaders of companies but actual cultural icons who people follow and look up to. Thus, it is imperative for companies to know which factors to look for and what matters and what not when evaluating a potential CEO. Boards have a tough time evaluating potential candidates and education is one of the few verifiable and objective factors (Tonello, 2011).
Another contribution of this paper is the comparison between the two measures of CSR performance for firms. Here we used CSR and ESG scores in our analysis and indirectly compared the two. From our study, we can say that although the CSR score is more popular in the literature, the ESG score is better able to reflect the true corporate social performance of firms. The two scores do take into account slightly different criteria when computing the score with the ESG score focusing on the environmental, social and governance factors (Refinitiv, 2020; Eccles et al., 2014) and the CSR score focusing on economic, social and environmental factors (Aguinis, 2011; Wagner, Lutz, & Weitz, 2009). From our analysis, we can see that the two scores are moderately correlated but not enough to be considered interchangeable. Moreover, the ESG analysis consistently showed better results compared to the CSR score, even though none of them were statistically significant.
the time spend in a foreign country and even the cultural distance. We propose a conceptual model in Figure 2 (Appendix B) for how the international experience of a CEO can be viewed. While international experience has been studied and discussed previously by other scholars (Caligiuri & Di Santo, 2001; Carpenter, Sanders, & Gregersen, 2001), this differentiation has only been vaguely pointed out by a few (Ma et al., 2019). The best evaluation of the international experience of CEOs has been done by Lee and Kroll in their paper from 2017 where they looked at over 86 other academic papers and where the IE of CEOs is evaluated using three indicators. However, they do not mention the effect international education might have on a CEO but do acknowledge that other factors besides the one they study might have a role.
5.2. Limitations and future research
We also acknowledge that the study presented here is subject to some limitations, which can be used by future researchers as a starting point for any new studies in this field. Firstly, the sample of firms and CEOs used in this paper was based on the S&P 500 index which includes the biggest companies in the world in terms of market capitalization. Even considering that by using this index we avoided variability in the sample, it did still affect the results of the analysis. As this index contains mostly companies from Europe and North America, the analysis suffers from selection bias and has decreased generalizability. Companies located in North America and Europe are facing stricter rules and regulations from the local governments when it comes to CSR compared to ones that are located in Asia or South America (Hurst, 2004). The European Union and the US government mandate that companies make annual sustainability and CSR reports available in order to demonstrate their commitment to ethical conduct to the public. This and other regulations are not present in all countries and companies can have drastically different CSR strategies depending on where they are located. As our sample contains mostly companies from Europe and North America, it is expected that their CSR performance will be higher than the average global company. This hinders the generalizability of the study due to the lack of observations from other countries and regions. Any future researchers should aim to use an index with more variability in terms of firm size and location in order to capture a more comprehensive effect of the studied phenomenon.
information regarding either the CSR and ESG scores or data about the educational background of CEOs were not available. Looking at the missing observations we can rule out the possibility of systematic bias as we could not find any pattern amongst them. The generalizability of our result is limited by this, but at the same time, it creates an opportunity for future researchers to fill in the gap. Our sample represents only a small fraction of the total companies and CEOs that could be studied. Future studies can expand on this by including more CEOs and diverse companies from other indices in order to obtain more representative results.
Another limitation of this study comes from the way we measured CSR performance of companies. The ESG score used here was sourced for the year 2017 which is the same year we used for the CEO data collection. This might decrease the accuracy of our results as in general the independent variable is measured one year prior to when the dependent variable is measured in order to capture its full effect. However, looking at CEO data we can see that the majority of CEOs were already in office for a year or more when data were recorded in 2017. The accuracy of our results was only slightly decreased and thus, the impact it had on our study was minimal.
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