Does CEO Risk-Aversion Affect Carbon Emission?

Ashrafee Hossain; Samir Saadi; Abu S. Amin

doi:10.1007/s10551-021-05031-8

Does CEO Risk-Aversion Affect Carbon Emission?

Ashrafee Hossain, Samir Saadi, Abu S. Amin

Finance And Law

Research output: Contribution to journal › Article › peer-review

4 Scopus citations

Abstract

Does CEO tolerance to risk affect a firm’s long-run sustainability? Using CEO insider debt holding, we show that CEO’s risk-aversion encourages immoral yet rational decisions of emitting more greenhouse gas thereby adversely affecting the firm’s long-run sustainability. Our result is robust to several endogeneity tests including a quasi-natural experiment. Our finding also suggest that to mitigate potential adverse reactions from stakeholders, carbon emitting firms with risk-averse CEOs tend to spend more on CSR activities. Much of the heterogeneity in our results are attributed to companies with weaker governance, powerful CEOs, and operating in a competitive product market. Overall, contrary to conventional wisdom, CEO preference toward risk-aversion can often lead to unethical outcomes (environmental degradation) and especially appears to be a key determinant for firm-level carbon emissions.

Original language	English
Pages (from-to)	1171-1198
Number of pages	28
Journal	Journal of Business Ethics
Volume	182
Issue number	4
DOIs	https://doi.org/10.1007/s10551-021-05031-8
State	Published - Feb 2023

Keywords

CEO inside debt
CSR
Carbon risk
Executive compensation
GHG emission

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10.1007/s10551-021-05031-8

Cite this

@article{16509020091243898223514c34b4cd81,

title = "Does CEO Risk-Aversion Affect Carbon Emission?",

abstract = "Does CEO tolerance to risk affect a firm{\textquoteright}s long-run sustainability? Using CEO insider debt holding, we show that CEO{\textquoteright}s risk-aversion encourages immoral yet rational decisions of emitting more greenhouse gas thereby adversely affecting the firm{\textquoteright}s long-run sustainability. Our result is robust to several endogeneity tests including a quasi-natural experiment. Our finding also suggest that to mitigate potential adverse reactions from stakeholders, carbon emitting firms with risk-averse CEOs tend to spend more on CSR activities. Much of the heterogeneity in our results are attributed to companies with weaker governance, powerful CEOs, and operating in a competitive product market. Overall, contrary to conventional wisdom, CEO preference toward risk-aversion can often lead to unethical outcomes (environmental degradation) and especially appears to be a key determinant for firm-level carbon emissions.",

keywords = "CEO inside debt, CSR, Carbon risk, Executive compensation, GHG emission",

author = "Ashrafee Hossain and Samir Saadi and Amin, {Abu S.}",

note = "Funding Information: We specially thank Greg Shailer (the editor) and two anonymous reviewers for helping us improve the manuscript. We thank Walid Ben Amar, Gurmeet Bhabra, Harjeet Bhabra, Lamia Chourou, Imed Chkir, Sean Cleary, Sara Ding, Darlene Himick, Mostafa Hasan, Majidul Islam, Kose John, Jon Keller, Scott Linn, Xiaobing Ma, Abdullah Al Masum, Jinghua Nie, Hatem Rjjiba, Mingyue Zhang, and Ligang Zhong for their valuable comments on earlier version of the paper. We also thank seminar participants at Memorial University of Newfoundland for their comments. A. Hossain thanks Memorial University of Newfoundland and the Social Sciences and Humanities Research Council of Canada (SSHRC, Grant #430-2020-00275) for providing financial support. We thank William Schipper for his excellent copy editing work. We thank Meghraj Mukhopadhyay for his research assistance. All remaining errors are our own. Publisher Copyright: {\textcopyright} 2022, The Author(s), under exclusive licence to Springer Nature B.V.",

year = "2023",

month = feb,

doi = "10.1007/s10551-021-05031-8",

language = "English",

volume = "182",

pages = "1171--1198",

journal = "Journal of Business Ethics",

issn = "0167-4544",