Our study identifies undisclosed executive compensation as a critical contingency affecting the relationship between political connections and the decoupling of CSR initiatives. Drawing on cognitive dissonance theory, we theorize that both politically connected firms and executives suffer from dissonance between their “cognitions”—doing substantial CSR —and their “actions”—buffering from the government oversight to engage in symbolic CSR. We propose that undisclosed executive compensation can reduce the dissonance at both the individual and organizational levels. Thus, firms whose executives hold political connections and obtain undisclosed compensations are more likely to engage in CSR decoupling. Analyzing 3,912 firm-year observations from 2010 to 2021, our empirical results support this argument. We also find that state ownership, foreign ownership, and transparency can mitigate the “action”, thus reducing dissonance at both levels. This research enriches cognitive dissonance theory by explaining the mechanisms through which individual and organizational dissonance arise when engaging in unethical practices to buffer from government oversight. Practically, our study offers insights for investors, regulatory bodies, and companies in emerging markets, advocating for genuine CSR efforts and ethical business practices to improve corporate governance.
