Executive Compensation, Sustainable Compensation Policy, Carbon Performance and Market Value

British Journal of Management, Forthcoming

42 Pages Posted: 21 Jan 2020

See all articles by Faizul Haque

Faizul Haque

Edinburgh Business School

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Date Written: January 1, 2020

Abstract

We examine the interrelationships among executive compensation, environmental-social-governance-based (ESG) sustainable compensation policy, carbon performance and market value. Using one of the largest datasets to-date, consisting of 4,379 firm-year observations covering a period of 15 years (2002-2016) from 13 industrialised European countries and insights from neo-institutional theory (NIT), our findings are four-fold. First, our results suggest that process-oriented carbon performance is positively associated with market value, whereas actual-carbon performance has no effect on market value. Second, we show that the market value–process-oriented carbon performance nexus is moderated by executive compensation. Third, our results indicate that executive compensation has a positive effect on process-oriented carbon performance, but has no similar effect on actual-carbon performance. Fourth, we show that the process-oriented carbon performance–executive compensation nexus is reinforced for companies that adopt ESG-based sustainable compensation policy. Our results are generally robust to controlling for governance mechanisms, alternative measures/estimations and endogeneities. Overall, our evidence supports legitimisation aspect of NIT and suggests that the market tends to reward firms with superior process-oriented carbon performance instead of undervaluing firms with excessive actual-carbon emissions. This implies that firms appear to use incentive-based mechanisms to symbolically improve their process-oriented carbon performance without substantively improving their actual-carbon performance.

Keywords: Executive compensation, ESG-based sustainable compensation policy, carbon performance and climate change, corporate governance and market value

JEL Classification: G34, M14

Suggested Citation

Haque, Faizul and Ntim, Collins G., Executive Compensation, Sustainable Compensation Policy, Carbon Performance and Market Value (January 1, 2020). British Journal of Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3512600 or http://dx.doi.org/10.2139/ssrn.3512600

Faizul Haque (Contact Author)

Edinburgh Business School ( email )

Riccarton
Edinburgh, Scotland EH14 4AS
United Kingdom

Collins G. Ntim

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

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