ESG Disclosure, CEO Power and Incentives and Corporate Risk-taking

European Financial Management, Forthcoming

49 Pages Posted: 25 Jul 2023

See all articles by Faek Menla Ali

Faek Menla Ali

University of Sussex Business School

Yuanyuan Wu

University of Sussex - School of Business, Management and Economics

XiaoXiang Zhang

University of Sussex - School of Business, Management and Economics

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.

Suggested Citation

Menla Ali, Faek and Wu, Yuanyuan and Zhang, XiaoXiang, ESG Disclosure, CEO Power and Incentives and Corporate Risk-taking (July 17, 2023). European Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4513355

Faek Menla Ali (Contact Author)

University of Sussex Business School ( email )

Jubilee Building
Falmer
Brighton, BN1 9SN
United Kingdom

Yuanyuan Wu

University of Sussex - School of Business, Management and Economics ( email )

XiaoXiang Zhang

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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