IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i2p1471-d1033576.html
   My bibliography  Save this article

Environmental, Social and Governance Performance: Analysis of CEO Power and Corporate Risk

Author

Listed:
  • Yan Zhao

    (School of Management, Shandong University of Technology, Zibo 255000, China)

  • Ehsan Elahi

    (School of Economics, Shandong University of Technology (SDUT), Zibo 255049, China)

  • Zainab Khalid

    (School of Economics and Management, Southeast University, Nanjing 210009, China)

  • Xuegang Sun

    (School of Economics and Management, Hebei University of Technology, Tianjin 300130, China)

  • Fang Sun

    (School of Management, Shandong University of Technology, Zibo 255000, China)

Abstract

This study explores the relationship between a company’s Environmental, Social, and Governance (ESG) performance, and corporate risk. Moreover, the study emphasizes how CEO power moderates this relationship. Using a sample of Chinese A-share listed enterprises from 2011 to 2018, it is found that better ESG performance can reduce firms’ risk. The negative relationship between ESG performance and corporate is stronger for the company with greater CEO power. This link is weaker for state-owned firms and stronger for firms with lower institutional investor holdings. Furthermore, ESG performance mainly affects enterprise risk through three channels: firm reputation, information transparency, and internal control. Generally, firms with better ESG performance are more likely to have sound risk management frameworks. Our findings provide empirical evidence for implementing an ESG information disclosure system and promoting responsible investment in the capital market.

Suggested Citation

  • Yan Zhao & Ehsan Elahi & Zainab Khalid & Xuegang Sun & Fang Sun, 2023. "Environmental, Social and Governance Performance: Analysis of CEO Power and Corporate Risk," Sustainability, MDPI, vol. 15(2), pages 1-18, January.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:2:p:1471-:d:1033576
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/2/1471/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/2/1471/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ryan Baxter & Jean C. Bedard & Rani Hoitash & Ari Yezegel, 2013. "Enterprise Risk Management Program Quality: Determinants, Value Relevance, and the Financial Crisis," Contemporary Accounting Research, John Wiley & Sons, vol. 30(4), pages 1264-1295, December.
    2. Ulf Axelson & Sandeep Baliga, 2009. "Liquidity and Manipulation of Executive Compensation Schemes," The Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 3907-3939, October.
    3. Grinstein, Yaniv & Hribar, Paul, 2004. "CEO compensation and incentives: Evidence from M&A bonuses," Journal of Financial Economics, Elsevier, vol. 73(1), pages 119-143, July.
    4. Milton Friedman, 1971. "A Theoretical Framework for Monetary Analysis," NBER Books, National Bureau of Economic Research, Inc, number frie71-1, March.
    5. Joliet, Robert & Titova, Yulia, 2018. "Equity SRI funds vacillate between ethics and money: An analysis of the funds’ stock holding decisions," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 70-86.
    6. Stephen Brammer & Stephen Pavelin, 2006. "Voluntary Environmental Disclosures by Large UK Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7-8), pages 1168-1188.
    7. Elahi, Ehsan & Zhang, Hongxia & Lirong, Xing & Khalid, Zainab & Xu, Haiyun, 2021. "Understanding cognitive and socio-psychological factors determining farmers’ intentions to use improved grassland: Implications of land use policy for sustainable pasture production," Land Use Policy, Elsevier, vol. 102(C).
    8. Stephen Brammer & Stephen Pavelin, 2006. "Voluntary Environmental Disclosures by Large UK Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 1168-1188, September.
    9. Changhong Zhao & Yu Guo & Jiahai Yuan & Mengya Wu & Daiyu Li & Yiou Zhou & Jiangang Kang, 2018. "ESG and Corporate Financial Performance: Empirical Evidence from China’s Listed Power Generation Companies," Sustainability, MDPI, vol. 10(8), pages 1-18, July.
    10. Benedikt Downar & Jürgen Ernstberger & Stefan Reichelstein & Sebastian Schwenen & Aleksandar Zaklan, 2021. "The impact of carbon disclosure mandates on emissions and financial operating performance," Review of Accounting Studies, Springer, vol. 26(3), pages 1137-1175, September.
    11. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    12. Elahi, Ehsan & Khalid, Zainab & Tauni, Muhammad Zubair & Zhang, Hongxia & Lirong, Xing, 2022. "Extreme weather events risk to crop-production and the adaptation of innovative management strategies to mitigate the risk: A retrospective survey of rural Punjab, Pakistan," Technovation, Elsevier, vol. 117(C).
    13. Mohammed Benlemlih & Isabelle Girerd-Potin, 2017. "Corporate social responsibility and firm financial risk reduction: On the moderating role of the legal environment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(7-8), pages 1137-1166, July.
    14. Cuervo-Cazurra, Alvaro & Li, Cheng, 2021. "State ownership and internationalization: The advantage and disadvantage of stateness," Journal of World Business, Elsevier, vol. 56(1).
    15. Goldman, Eitan & Slezak, Steve L., 2006. "An equilibrium model of incentive contracts in the presence of information manipulation," Journal of Financial Economics, Elsevier, vol. 80(3), pages 603-626, June.
    16. D’Haultfœuille, Xavier & Hoderlein, Stefan & Sasaki, Yuya, 2023. "Nonparametric difference-in-differences in repeated cross-sections with continuous treatments," Journal of Econometrics, Elsevier, vol. 234(2), pages 664-690.
    17. Julian F. Kölbel & Timo Busch & Leonhardt M. Jancso, 2017. "How Media Coverage of Corporate Social Irresponsibility Increases Financial Risk," Strategic Management Journal, Wiley Blackwell, vol. 38(11), pages 2266-2284, November.
    18. Amir Gholami & John Sands & Habib Ur Rahman, 2022. "Environmental, Social and Governance Disclosure and Value Generation: Is the Financial Industry Different?," Sustainability, MDPI, vol. 14(5), pages 1-17, February.
    19. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    20. Elahi, Ehsan & Khalid, Zainab & Weijun, Cui & Zhang, Huiming, 2020. "The public policy of agricultural land allotment to agrarians and its impact on crop productivity in Punjab province of Pakistan," Land Use Policy, Elsevier, vol. 90(C).
    21. Darwin Choi & Zhenyu Gao & Wenxi Jiang, 2020. "Attention to Global Warming," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1112-1145.
    22. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, vol. 79(3), pages 469-506, March.
    23. Marianne Bertrand & Antoinette Schoar, 2003. "Managing with Style: The Effect of Managers on Firm Policies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1169-1208.
    24. Elahi, Ehsan & Khalid, Zainab & Zhang, Zhixin, 2022. "Understanding farmers’ intention and willingness to install renewable energy technology: A solution to reduce the environmental emissions of agriculture," Applied Energy, Elsevier, vol. 309(C).
    25. Elahi, Ehsan & Zhang, Zhixin & Khalid, Zainab & Xu, Haiyun, 2022. "Application of an artificial neural network to optimise energy inputs: An energy- and cost-saving strategy for commercial poultry farms," Energy, Elsevier, vol. 244(PB).
    26. Feng, Jingwen & Goodell, John W. & Shen, Dehua, 2022. "ESG rating and stock price crash risk: Evidence from China," Finance Research Letters, Elsevier, vol. 46(PB).
    27. Shakil, Mohammad Hassan, 2021. "Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity," Resources Policy, Elsevier, vol. 72(C).
    28. Philipp Krueger & Zacharias Sautner & Laura T Starks, 2020. "The Importance of Climate Risks for Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1067-1111.
    29. Shiyu Wu & Xinyi Li & Xiaosen Du & Zexin Li, 2022. "The Impact of ESG Performance on Firm Value: The Moderating Role of Ownership Structure," Sustainability, MDPI, vol. 14(21), pages 1-22, November.
    30. Elahi, Ehsan & Khalid, Zainab, 2022. "Estimating smart energy inputs packages using hybrid optimisation technique to mitigate environmental emissions of commercial fish farms," Applied Energy, Elsevier, vol. 326(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuxin Ning & Yihan Zhang, 2023. "Does Digital Finance Improve Corporate ESG Performance? An Intermediary Role Based on Financing Constraints," Sustainability, MDPI, vol. 15(13), pages 1-17, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xiuli Cui & Ehsan Elahi & Zainab Khalid & Bo Xu, 2022. "Environmental Regulation, Manufacturing Technological Progress and Pollution Emissions: Empirical Evidence from China," Sustainability, MDPI, vol. 14(23), pages 1-19, December.
    2. Min Zhu & Haiyun Tang & Ehsan Elahi & Zainab Khalid & Kaili Wang & Nimra Nisar, 2022. "Spatial-Temporal Changes and Influencing Factors of Ecological Protection Levels in the Middle and Lower Reaches of the Yellow River," Sustainability, MDPI, vol. 14(22), pages 1-16, November.
    3. Shengnan Huang & Ehsan Elahi, 2022. "Farmers’ Preferences for Recycling Pesticide Packaging Waste: An Implication of a Discrete Choice Experiment Method," Sustainability, MDPI, vol. 14(21), pages 1-13, October.
    4. Feng Ji & Guangyuan Zhao & Lun Meng & Rana Tehseen & Fushuai Wang, 2022. "Cultivating Talents for Reporting Environmental News on China’s Carbon Neutrality Policy," Sustainability, MDPI, vol. 14(24), pages 1-19, December.
    5. Wei Wang & Ehsan Elahi & Shiying Sun & Xiaoqing Tong & Zhaosen Zhang & Mohammad Ilyas Abro, 2023. "Factors Influencing Water Use Efficiency in Agriculture: A Case Study of Shaanxi, China," Sustainability, MDPI, vol. 15(3), pages 1-14, January.
    6. Lirong Xing & Xiaomiao Yin & Chuanxiang Cao & Ehsan Elahi & Taoyuan Wei, 2022. "The Impact of Multidimensional Distance on Agricultural Exports: Evidence from China Based on the Technological Added Value," Sustainability, MDPI, vol. 15(1), pages 1-17, December.
    7. Xiaolong Gao & Changfei Li & Ehsan Elahi & Mohammad Ilyas Abro & Zhaocai Cui, 2023. "Technological Innovation, Product Quality and Upgrading of Manufacturing Value Chain: Empirical Evidence from China," Sustainability, MDPI, vol. 15(9), pages 1-19, April.
    8. Lun Wang & Ehsan Elahi & Yuzhong Zhou & Liming Wang & Shihan Zhang, 2022. "A Review of Packaging Materials’ Consumption Regulation and Pollution Control," Sustainability, MDPI, vol. 14(23), pages 1-16, November.
    9. Xingshuai Wang & Ehsan Elahi & Zainab Khalid, 2022. "Do Green Finance Policies Foster Environmental, Social, and Governance Performance of Corporate?," IJERPH, MDPI, vol. 19(22), pages 1-15, November.
    10. Min Zhu & Mengqi Sun & Ehsan Elahi & Yajie Li & Zainab Khalid, 2023. "Analyzing the Relationship between Green Finance and Agricultural Industrial Upgrading: A Panel Data Study of 31 Provinces in China," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    11. Min Zhu & Yajie Li & Zainab Khalid & Ehsan Elahi, 2023. "Comprehensive Evaluation and Promotion Strategy of Agricultural Digitalization Level," Sustainability, MDPI, vol. 15(8), pages 1-15, April.
    12. Haidong Yuan & Chin-Hong Puah & Josephine Tan-Hwang Yau, 2022. "How Does Population Aging Impact Household Financial Asset Investment?," Sustainability, MDPI, vol. 14(22), pages 1-14, November.
    13. Kaili Wang & Ehsan Elahi & Yuge Zhang & Di Wang & Zainab Khalid, 2022. "A Development of Green Finance and Regional Eco-Efficiency in China," Sustainability, MDPI, vol. 14(22), pages 1-18, November.
    14. Zhixin Zhang & Yingjie Li & Ehsan Elahi & Yameng Wang, 2022. "Comprehensive Evaluation of Agricultural Modernization Levels," Sustainability, MDPI, vol. 14(9), pages 1-17, April.
    15. Xingshuai Wang & Ehsan Elahi & Zainab Khalid & Mohammad Ilyas Abro, 2023. "Environmental Governance Goals of Local Governments and Technological Innovation of Enterprises under Green Performance Assessment," IJERPH, MDPI, vol. 20(3), pages 1-19, January.
    16. Gong, Maogang & Elahi, Ehsan, 2022. "A nexus between farmland rights, and access, demand, and amount of agricultural loan under the socialist system of China," Land Use Policy, Elsevier, vol. 120(C).
    17. Yihao Cao & Ehsan Elahi & Zainab Khalid & Ping Li & Pengsheng Sun, 2023. "How Do Intellectual Property Rights Affect Green Technological Innovation? Empirical Evidence from China," Sustainability, MDPI, vol. 15(10), pages 1-17, May.
    18. Kerstin Lopatta & Thomas Kaspereit & Sebastian A. Tideman & Anna R. Rudolf, 2022. "The moderating role of CEO sustainability reporting style in the relationship between sustainability performance, sustainability reporting, and cost of equity," Journal of Business Economics, Springer, vol. 92(3), pages 429-465, April.
    19. Xingshuai Wang & Ehsan Elahi & Lianggui Zhang, 2022. "Mandatory Environmental Regulation and Green Technology Innovation: Evidence from China," Sustainability, MDPI, vol. 14(20), pages 1-13, October.
    20. Du Peng & Ehsan Elahi & Zainab Khalid, 2023. "Productive Service Agglomeration, Human Capital Level, and Urban Economic Performance," Sustainability, MDPI, vol. 15(9), pages 1-25, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:2:p:1471-:d:1033576. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.