Hanging in There for Employees : Managerial Prosocial Preferences, Firm Exit Thresholds, and Risk-Taking

When facing economic setbacks, managers may continue operating due to the concern that exiting may harm employees who lose their jobs. We propose that managers with higher prosocial preferences set lower exit thresholds and avoid risky investments that increase the risk of having to exit. These hypotheses are tested using a multi-method design. Our field study shows that, in responding to intensifying Chinese import competition, prosocial managers (e.g., those who volunteer at charitable organizations, lean non-Republican in political orientation, maintain employee-friendly policies, or are promoted internally) are less likely to exit, divest, and invest in R&D. A manager’s concern for employees mediates the negative effect of prosocial preferences on exit thresholds and risky investments (Experiment 1) and has larger effects when employees face a greater cost of job loss due to the loss of medical insurance (Experiment 2). We show that anticipated guilt is a key component of the prosocial cost (Experiment 3). Our study presents managerial prosocial cost as a critical input to corporate strategy and risk-taking