Executive Ownership and Sustainability Performance

Abstract

Executive ownership addresses agency problems by aligning the financial goals of management and shareholders. We explore whether executive ownership fosters a non-financial sustainability footprint as well. We find that executive ownership is negatively associated with US firms’ environmental and social performance. A quasi-natural experiment shows that the inverse relationship between executive ownership and sustainability performance is causal. Executive ownership schemes can thus be detrimental for firms aiming to maximize stakeholder value by addressing environmental and social challenges. Executive compensation should rather include incentives explicitly linked to sustainability goals.

Keywords: Executive ownership, ESG, Sustainability, Stakeholders, Agency Theory

JEL Classification: G32, M14, Q56