CEO compensation–corporate hedging: does CSR matter? Evidence from South Asia

Purpose The purpose of this study is to empirically examine the impact of chief executive officer (CEO) compensation on corporate hedging (CH) in the emerging markets, India and Pakistan. The authors develop and test two hypotheses based on stakeholder and resource dependence perspectives, impact of CEO compensation on CH and whether corporate social responsibility (CSR) activities moderate this relationship. Design/methodology/approach To investigate this, the authors have used hand-collected data from the financial statements of 170 listed firms in India and Pakistan for the period of 2007 to 2022. The authors have used fixed effect logistic regression, propensity score matching and difference-in-difference (DID) approaches for the data analysis. Findings The authors find the negative impact of CEO compensation on CH practices. Interestingly, the results reveal varying effects of CSR activities on the relationship, which positively moderate the relationship in India but not in Pakistan. In addition, this study evaluates the impact of mandated CSR policy in India and voluntary CSR policy in Pakistan using DID approach, revealing that mandated CSR practices positively influence CH practices. Practical implications This study provides important implications for policymakers and business managers to manage their risks in more unconventional ways, helping firms and countries to build sustainable business practices in South Asia. Originality/value Drawing insights from stakeholder theory and resource dependence theory, we empirically examine the impact of CEO compensation on CH in the unique context of South Asia and uncover that firm CSR activities moderate this relationship. In doing so, the authors highlight the importance of contextual factors. Second, the authors evaluate the mandatory CSR policy initiative of the Indian government.