CEO turnover risk and firm environmental performance

Giulio Cornelli, Magdalena Erdem and Egon Zakrajšek ()

No 1190, BIS Working Papers from Bank for International Settlements

Abstract: We investigate the relationship between the probability of a CEO forced-turnover and firm performance on several environmental dimensions. Our findings suggest that a higher risk of being terminated for the CEO is correlated with a lower environmental ranking, particularly on environmental innovation activities, and more ESG controversies for the firm. The inclusion of ESG-pay clauses in executives' compensation packages only marginally offsets such deterioration. Looking at data on Greenhouse gas (GHG) emissions, we consistently find that a rise in the probability of being terminated corresponds to an increase in scope 2 and 3 emissions ("carbon leakeage"), whereas scope 1 emissions remain unchanged. Through an instrumental variable approach, we trace the deterioration of firms' ESG controversies- and environmental innovation scores to a strategical re-orientation towards short-terminism.

Keywords: corporate finance; ESG; emissions; environmental innovation; short-terminism (search for similar items in EconPapers)
JEL-codes: D22 G30 G34 O31 Q55 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-cse, nep-eff, nep-env and nep-sbm
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