CEO stock options and corporate climate change: the behavioral agency model and the moderating effect of social capital

Maretno A. Harjoto

Journal of Environmental Planning and Management, 2025, vol. 68, issue 7, 1564-1598

Abstract: Examining the impact of CEO options compensation on corporate adverse impacts on climate change from the perspective of CEO loss aversion and risk-taking, this study argues that higher current (prospective) wealth leads to higher loss aversion (risk-taking) against (toward) corporate climate change. Integrating social capital theory into the behavioral agency model (BAM), the study argues that social capital is negatively related to corporate climate change risk-taking behavior and social capital is moderating the relationship between CEO options compensation and corporate climate change. Using a sample of 1,397 US firms from 2005 to 2019 and various measures of corporate climate change and social capital and estimation methods, it finds evidence to support these hypotheses. This study extends the BAM to explain CEO risk-taking behavior toward climate change and integrates the social capital theory. It offers practical implications to design CEO compensation to reduce the adverse impact of corporations on climate change.

Date: 2025
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DOI: 10.1080/09640568.2023.2294433

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