The study investigates how corporate social responsibility (CSR) influences managerial empire‑building while considering the moderating roles of financial constraints and CEO overconfidence. Using data from 105 firms listed on the Tehran Stock Exchange during the period 2014–2022 and applying multiple regression models with panel data, the findings show that CSR activities significantly restrain managers from expanding their control in inefficient ways. The results further indicate that financial constraints strengthen this negative relationship, meaning that when firms face limited financial resources, CSR engagement more strongly reduces managers’ empire‑building tendencies. In addition, CEO overconfidence amplifies this effect, as overconfident managers display fewer expansionist behaviors when they are involved in CSR initiatives. Overall, the study highlights the joint importance of financial conditions and managerial psychological traits in shaping the impact of CSR on strategic decision‑making. The research contributes a unified framework explaining the internal mechanisms linking CSR to managerial empire‑building and offers insights for designing more effective governance and monitoring policies.

1. Introduction
Agency conflicts stemming from the separation of ownership and control provide managers with opportunities to engage in actions that serve their own interests rather than those of shareholders. One manifestation of such opportunistic behavior is managerial empire-building, which refers to the excessive expansion of firm assets, operations, and investments beyond value-maximizing levels. While such expansion may not improve firm performance, it can enhance managerial power, influence, and job security.
Corporate social responsibility has been increasingly recognized as a mechanism that strengthens transparency, accountability, and stakeholder engagement. Through enhanced disclosure and stakeholder pressure, CSR can reduce information asymmetry and restrict managers’ ability to pursue self‑interested strategies. Nevertheless, the effectiveness of CSR in constraining empire-building may depend on the behavioral characteristics of the CEO and the firm’s financial conditions. Overconfident CEOs tend to overestimate expected returns and underestimate risks, making them more inclined toward aggressive expansion. In contrast, financial constraints limit managerial discretion by restricting access to external financing, which can enhance the disciplining role of CSR.
This study investigates whether CSR reduces managerial empire-building and how this relationship is moderated by CEO overconfidence and financial constraints, offering insights relevant to emerging markets such as Iran, where firms often face high information asymmetry and limited external financing.
2. Literature Review
Prior research emphasizes CSR as a governance tool capable of aligning managerial actions with stakeholder interests by enhancing disclosure quality and reducing agency problems. However, empirical findings remain mixed: some studies argue that CSR mitigates opportunistic behavior, while others suggest that it may serve symbolic purposes without substantial governance effects.
The literature on CEO overconfidence highlights that such managers tend to overinvest, pursue expansive projects, and display excessive optimism regarding future performance. This behavioral bias can undermine internal and external monitoring mechanisms. Meanwhile, financial constraints play a significant role in disciplining managers. When access to external resources is limited, managers face reduced freedom to undertake large-scale projects unless they are economically justified.
Building on these perspectives, three hypotheses are formulated:
1. CSR reduces managerial empire-building.
2. Financial constraints strengthen the negative relationship between CSR and managerial empire-building.
3. CEO overconfidence weakens the negative relationship between CSR and managerial empire-building.
3. Methodology
The study uses data from 105 firms listed on the Tehran Stock Exchange between 2014 and 2022. A balanced panel dataset is constructed following standard screening criteria.
Variables:
· Empire-building (dependent variable): measured by abnormal asset growth.
· CSR (independent variable): constructed using a disclosure index based on environmental, social, and governance dimensions.
· CEO overconfidence (moderator): measured by behavioral indicators derived from patterns of investment and financing decisions.
· Financial constraints (moderator): assessed using the Altman Z‑score.
· Control variables: firm size, leverage, profitability, growth opportunities, and board-related characteristics.
Models:
Three panel regression models are estimated:
1. CSR’s direct effect on empire-building
2. The moderating role of financial constraints
3. The moderating role of CEO overconfidence
Panel specification tests are conducted, and robust standard errors are applied to address heteroscedasticity and autocorrelation.
4. Results
The first model indicates that CSR has a negative and statistically significant effect on empire-building, supporting the view that CSR enhances transparency and restricts opportunistic managerial expansion.
The second model reveals that financial constraints amplify CSR’s inhibitory effect. Under constrained conditions, managers face fewer opportunities for discretionary expansion, and CSR pressure becomes more influential.
The third model shows that CEO overconfidence weakens the negative relationship between CSR and empire-building. Overconfident CEOs remain inclined toward aggressive growth strategies and pay less attention to stakeholder expectations embedded in CSR activities.
Robustness checks confirm the stability of the findings, highlighting the reliability of the results across alternative model specifications.
5. Discussion
The findings demonstrate that CSR can function as a complementary governance mechanism by providing transparency, enhancing stakeholder monitoring, and reducing managerial discretion. However, CSR’s effectiveness is contingent upon internal and external moderating forces. Financial constraints improve CSR’s ability to limit opportunistic expansion, while CEO overconfidence works in the opposite direction.
These results suggest that CSR alone may not be sufficient to curb empire-building in all contexts. The behavioral traits of top executives and firm‑level financial conditions play critical roles in determining the degree to which CSR fulfills its governance potential.
6. Conclusion
This study provides empirical evidence that CSR significantly reduces managerial empire-building. Financial constraints strengthen this effect, whereas CEO overconfidence undermines it. The findings highlight the importance of considering both managerial behavioral characteristics and firm financing conditions when assessing the governance role of CSR, particularly in emerging markets with high information asymmetry.