Air pollution and CEO compensation: Evidence from China

Kam C. Chan, Tao Chen, Baohua Liu and Junfeng Wu

Journal of Economics & Management Strategy, 2022, vol. 31, issue 2, 448-469

Abstract: This paper complements the literature on green finance by probing whether air pollution matters for CEO compensation. Using a sample covering 240 cities in 31 provinces in China from 2005 to 2017, we document a positive association between air pollution and CEO compensation. These findings indicate that firms headquartered in areas with unhealthy air compensate their CEOs with higher pay than those headquartered in areas with better air quality. Moreover, two potential channels are validated to interpret the positive pollution‐pay linkage: income comparison and executive shortage. Finally, we show that air pollution attenuates the pay‐performance sensitivity, indirectly confirming an essential role of the living environment in determining CEO compensation.

Date: 2022
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