The effect of ESG-motivated turnover on firm financial risk

Daewoung Choi, Yong Kyu Gam, Min Jung Kang and Hojong Shin

The British Accounting Review, 2025, vol. 57, issue 4

Abstract: This study investigates how effectively a forced CEO turnover mitigates a firm's distress risk amplified by a bad reputation for its Environmental, Social, and Governance (ESG) practices. We find that a firm's CEO dismissal decision significantly reduces the level of its distress risk—measured by Altman's Z-Score—subsequent to negative media coverage of the firm's ESG practices. This suggests that the forced CEO turnover may be taken as an ex-post damage instrument. Additional results show that the mitigation effect of CEO dismissal is stronger in firms under greater market scrutiny conditioned on various mechanisms: market competition, sin stock industry, and analyst coverage.

Keywords: ESG risk; Forced CEO turnover; Firm distress (search for similar items in EconPapers)
JEL-codes: G30 G32 J63 M10 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:57:y:2025:i:4:s0890838924001124

DOI: 10.1016/j.bar.2024.101373

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