Practices promoted by each company especially when

practices promoted by each company, especially when their goal is masking a
previous managerial discretion.
According to Handelman and Arnold ( 1999 ), managers can promote CSR
practices as a means of self-promotion and/or personal benefits rather than a
discretionary activity that goes beyond their or the company’s own welfare. Cespa
and Cestone ( 2007 ), Prior et al. ( 2008 ) and Gargouri et al. ( 2010 ) showed that
companies that indulge in earnings management (EM) behavior are more likely to
carry out discretionary ethical and social practices in order to secure their jobs and
increase compensation and to obtain the support of stakeholders. In this sense, CSR
could be viewed as a managerial entrenchment strategy to meet the demands of
different stakeholders.
On the other hand, specifically, a country’s business culture, and in particular
whether a country is more stakeholder-oriented, can influence the importance of
CSR issues in business operations at the country level (Williams and Aguilera 2008 ;
Dhaliwal et al. 2011 ). In a stakeholder-oriented business culture, a broad spectrum
of stakeholders are seen by society as possessing a legitimate interest in corporate
activities and have higher legitimacy in influencing corporate activities and
performance than in other environments (Agle et al. 1999 ; Chen and Bouvian 2009 ).
Thus, CSR practices are more observed, and stakeholders have available higher
information on how well firms handle issues related to different interest groups,
while managers have lower margins to entrenchment themselves. We predict that
the positive association between managerial discretion and CSR is less pronounced
in countries that are more stakeholder-oriented.
Our empirical analysis is based on a large sample of international listed
companies from 23 countries including the administrative region of Hong Kong and
covers the period 2002–2010. We use the Arellano and Bond ( 1991 ) generalized
method of moments (GMM) estimator on the panel data to analyze the effect of
managerial discretion on CSR strategy. As a result of this analysis we found
J. M. Ferrero, I. M. G. Sa ´nchez
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evidence supporting our hypotheses. Concretely, our results conclude that CSR
practices can be promoted as an entrenchment strategy by companies whose main
purpose lacks business ethics. Specifically, the aim masked by the economic, social
and environmental CSR practices prevents the detection of previous managerial
discretion, thereby avoiding the negative consequences of it. Therefore, we
conclude that CSR acts as a managerial entrenchment mechanism to mask previous
unethical behavior. However, this entrenchment is tempered by certain institutional
and cultural factors that affect not only companies but also different stakeholders. In
particular, the results of our research argue that such an entrenchment strategy based
on CSR practices is moderated by the level of stakeholder protection in the country
of origin of the company.