ESG Disclosure, CEO Power and Incentives and Corporate Risk-taking
European Financial Management, Forthcoming
49 Pages Posted: 25 Jul 2023
Date Written: July 17, 2023
Abstract
This paper investigates the impact of ESG disclosure on corporate risk-taking and how this impact is further affected by CEO power and incentives within US companies. We find that ESG disclosure decreases corporate risk-taking based on both accounting-based and market-based returns. Further, we find that ESG disclosure is more effective in mitigating market-based risk-taking than accounting-based risk-taking in a firm with a powerful CEO. In contrast, CEO’s ESG incentivized engagement bonuses weaken ESG disclosure impacts in reducing both types of risk-taking. Our analysis helps understanding of different trade-offs of ESG disclosure in aligning all stakeholders’ benefits under different managerial-related factors.
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