CEO power and ESG performance – The moderating effect of CEO characteristics

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Journal Title
Journal ISSN
Volume Title
School of Business | Master's thesis
Date
2024
Major/Subject
Mcode
Degree programme
Management and International Business (MIB)
Language
en
Pages
98 + 8
Series
Abstract
The objective of this study is to examine the relationship between CEO power and firms’ ESG performance, and to investigate the moderating effects of CEO age, gender, and duality on this relationship. The study aims to increase the general understanding of the role of CEO power and characteristics in influencing firms' ESG which is crucial for corporate governance and sustainability practices and an extremely current topic. The sample includes 20758 firm-year observations of North American firms from the years 2003-2018. The main findings of the study indicate a negative relationship between CEO power and ESG performance. This suggests that powerful CEOs tend to have less consideration for ESG relatedissues, resulting in worse ESG performance. This is consistent with existing research and supports the view that CEOs with excessive power may prioritize their own interests over CSR activities. Additionally, the study found that the negative relationship between CEO power and ESG performance is strengthened when the CEO also serves as the chair of the board, further emphasizing the importance of appropriate corporate governance structures. Furthermore, the results suggest that the negative relationship between CEO power and ESG performance may be weakened by younger CEOs but did not provide support for the positive moderating effect of female CEOs. However, it is important to note that the small number of female CEOs in the sample limits the reliability of the results. Further research with a different sample would need to be conducted to validate these results. The theoretical contributions of this study lie in its examination of how different sources of CEO power impact the relationship between CEO power and ESG performance, as well as in the investigation of the moderating effects of CEO age, gender, and duality. By considering three different proxies to measure CEO power, the study provides a more comprehensive understanding of how different sources of power impact firms' ESG performance. Furthermore, the study addresses a gap in academic literature by exploring the combined effects of CEO power and the selected CEO characteristics on ESG performance. In addition, the findings suggest that firms should pay attention to the level of power held by the CEO, as firms with powerful CEOs tend to exhibit worse ESG performance. This is particularly important for firms seeking to improve their ESG ratings. Firms should also consider implementing appropriate control mechanisms to prevent CEOs from having excessive power, as this can lead to increased agency problems and weaker corporate governance, ultimately affecting ESG performance. Future research should further expand on these findings and explore other dimensions of CEO power and characteristics in relation to ESG performance.
Description
Thesis advisor
Kautto, Daria
Keywords
ESG, CSR, CEO power, CEO characteristics, ESG ratings
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