From dawn to dusk: The relationship between CEO career horizon and ESG engagement

David Cabreros, Gabriel de la Fuente and Pilar Velasco

International Review of Financial Analysis, 2024, vol. 93, issue C

Abstract: This study investigates the influence of a CEO's career horizon on a firm's engagement in ESG. Given the private benefits which CEOs can extract from this strategy, we argue that a firm's willingness to pursue additional ESG efforts is likely to mirror CEOs' desire to strengthen their personal reputation and curb their perceived risk exposure at each stage of their career horizon. Drawing on the prospect theory, we theorize the decomposition of CEOs' career horizon into two counteracting forces (career concerns and legacy concerns) to explain how a CEO's effort in ESG could change depending on the length of the horizon and the influence of a reference point, such as their firm's performance relative to the industry benchmark. Using a sample of European listed companies from 2007 to 2018, our evidence supports an inverted U-shaped relationship between CEO career horizon and a firm's ESG engagement. This result shows the importance of a CEO's eagerness for personal reputation as a key antecedent of companies' ESG actions. However, a CEO's perceived risk exposure proves not to be a relevant driver of ESG, since we find that such a relationship is not sensitive to decision framing based on relative performance.

Keywords: ESG; Prospect theory; CEO career horizon; Decision framing (search for similar items in EconPapers)
JEL-codes: G30 G34 M12 M14 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:93:y:2024:i:c:s1057521924001327

DOI: 10.1016/j.irfa.2024.103200

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