Follow the Leader: How Culture Gives Rise to a Behavioral Bias That Leads to Higher Greenhouse Gas Emissions

Le Zhao (), Nima Vafai, Marcos Velazquez and Abu Amin
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Le Zhao: Department of Finance, Real Estate and Business Law, Craig School of Business, California State University, Fresno, CA 93710, USA
Nima Vafai: Department of Accounting, Finance, & Energy Business, College of Business, The University of Texas Permian Basin, Odessa, TX 79762, USA
Marcos Velazquez: Department of Accounting, Finance, & Energy Business, College of Business, The University of Texas Permian Basin, Odessa, TX 79762, USA
Abu Amin: Department of Finance and Law, College of Business Administration, Central Michigan University, Mount Pleasant, MI 48858, USA

JRFM, 2024, vol. 17, issue 6, 1-27

Abstract: This research investigates the influence of national culture, particularly power distance, on firms’ carbon dioxide (CO 2 ) emissions. Drawing on a large international dataset spanning over a decade, we examine how power distance, agency conflict, and socioeconomic stability interact to shape firms’ emission decisions. Our analysis reveals a significant positive relationship between power distance and firms’ CO 2 emissions, indicating that firms located in countries characterized by higher power distance tend to emit more greenhouse gases (GHGs). Furthermore, we find that agency conflict moderates this relationship, with firms experiencing high levels of debt or paying substantial dividends exhibiting lower emissions in high power distance environments. Additionally, socioeconomic stability attenuates the positive association between power distance and emissions, suggesting that the effectiveness of cultural influences on emission decisions is contingent upon the stability of the societal context. These findings underscore the importance of considering cultural dimensions, agency dynamics, and socioeconomic conditions in understanding corporate environmental behavior. Our research contributes to the literature by providing empirical evidence of the nuanced interplay between national culture, agency conflict, and socioeconomic stability in shaping firms’ emission decisions. Policymakers and practitioners can use these insights to develop more targeted environmental policies and strategies aimed at promoting sustainable development globally.

Keywords: greenhouse gas emissions; power distance; agency conflict; state fragility; behavioral finance; culture; corporate environmental performance; framing bias (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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