Renewable Governance: Good for the Environment?

63 Pages Posted: 2 Aug 2018 Last revised: 6 Dec 2021

See all articles by I. J. Alexander Dyck

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Karl V. Lins

University of Utah - Department of Finance

Lukas Roth

University of Alberta - Department of Finance and Statistical Analysis; European Corporate Governance Institute (ECGI)

Mitch Towner

University of Arizona - Department of Finance

Hannes F. Wagner

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; European Corporate Governance Institute (ECGI)

Date Written: November 18, 2021

Abstract

Given the mismatch between investors’ desires and firm’s choices regarding environmental performance, we hypothesize that to change firm policies, investors will need board renewal mechanisms powerful enough to renew the thinking of the board. We identify the adoption of majority voting and the introduction of a female director as corporate governance mechanisms potentially strong enough to accomplish this. Using a sample of 3,293 firms from 41 countries, we find that three years after board renewal via either majority voting or adding a female director, environmental performance levels are 19% greater relative to the year before board renewal. Board renewal improves environmental performance even when a country’s institutions are weak. Quasi-exogenous shocks to these board renewal mechanisms support the interpretation that governance improvements drive environmental performance and suggest that the ability of investors to renew the board and replace directors is a powerful mechanism to influence corporate outcomes around the world.

Keywords: Environmental performance, Ownership structure, Sustainability, Corporate social responsibility, ESG, Corporate governance

JEL Classification: G15, G23, G32

Suggested Citation

Dyck, I.J. Alexander and Lins, Karl V. and Roth, Lukas and Towner, Mitch and Wagner, Hannes F., Renewable Governance: Good for the Environment? (November 18, 2021). Available at SSRN: https://ssrn.com/abstract=3224680 or http://dx.doi.org/10.2139/ssrn.3224680

I.J. Alexander Dyck

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S 3E6
Canada
416-946-0819 (Phone)

Karl V. Lins

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-3171 (Phone)
801-581-7214 (Fax)

Lukas Roth (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32E Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-4431 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Mitch Towner

University of Arizona - Department of Finance ( email )

1130 E. Helen Street
Office 315K
Tucson, AZ 85721-0108
United States

HOME PAGE: http://www.mitchtowner.com

Hannes F. Wagner

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://mypage.unibocconi.eu/hanneswagner

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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