CEO Hometown Favoritism in Corporate Environmental Policies

54 Pages Posted: 3 Jun 2021 Last revised: 5 Nov 2021

See all articles by Wei Li

Wei Li

Shanghai University of Finance and Economics

Qiping Xu

University of Illinois Urbana Champaign

Qifei Zhu

Nanyang Business School, Nanyang Technological University

Date Written: June 3, 2021

Abstract

Exploiting within-firm variations in plant-level toxic releases, we document the effect of managerial hometown attachment on corporate environmental policies. Pollution intensity is 20% lower for plants near CEOs' hometowns, achieved by conducting more costly waste management activities such as source reduction, recycling, and energy recovery. Analyses using CEO turnover events provide causal inference. Hometown emission reduction is stronger for poorly-governed firms, and is significantly weakened following the exogenous reduction in agency conflicts driven by the 2003 Tax Reform Act. In addition, hometown emission reduction is most salient in firms with worse CSR performance or tighten financial constraints. Our findings reveal that CEOs' personal motives affect corporate pollution abatement, which is manifested as a form of agency problem.

Keywords: CEO, Hometown favoritism, Corporate environmental policies, CSR

JEL Classification: G30, G32, G02

Suggested Citation

Li, Wei and Xu, Qiping and Zhu, Qifei, CEO Hometown Favoritism in Corporate Environmental Policies (June 3, 2021). Available at SSRN: https://ssrn.com/abstract=3859116 or http://dx.doi.org/10.2139/ssrn.3859116

Wei Li

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Qiping Xu

University of Illinois Urbana Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Qifei Zhu (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

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