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The effect of ESG-motivated turnover on firm financial risk

Author

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

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.

Suggested Citation

  • Choi, Daewoung & Gam, Yong Kyu & Kang, Min Jung & Shin, Hojong, 2025. "The effect of ESG-motivated turnover on firm financial risk," The British Accounting Review, Elsevier, vol. 57(4).
    • Handle: RePEc:eee:bracre:v:57:y:2025:i:4:s0890838924001124
    DOI: 10.1016/j.bar.2024.101373
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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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