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Does CEO Risk-Aversion Affect Carbon Emission?

Author

Listed:
  • Ashrafee Hossain

    (Memorial University of Newfoundland)

  • Samir Saadi

    (University of Ottawa
    Gulf University for Science and Technology, West Mishref)

  • Abu S. Amin

    (Central Michigan University)

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.

Suggested Citation

  • Ashrafee Hossain & Samir Saadi & Abu S. Amin, 2023. "Does CEO Risk-Aversion Affect Carbon Emission?," Journal of Business Ethics, Springer, vol. 182(4), pages 1171-1198, February.
    • Handle: RePEc:kap:jbuset:v:182:y:2023:i:4:d:10.1007_s10551-021-05031-8
    DOI: 10.1007/s10551-021-05031-8
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    More about this item

    Keywords

    CEO inside debt; Executive compensation; Carbon risk; GHG emission; CSR;
    All these keywords.

    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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