How CEO Affects ESG and the Financial Performance of Companies
Abstract
In the past decade the society grew more interested in corporate operations concerning environmental, social, and corporate governance (ESG). This paper is dedicated to study of influence of CEO’s personal characteristics on financial performance of companies and interrelation between ESG indicators and corporate financial performance. For this purpose we have conducted a review of scientific literature on this topic, established interrelation between financial indicators and ESG indicators, determined the main characteristics which influence corporate financial indicators. For this purpose we developed a model of CEO’s personal characteristics. The paper studied characteristics of CEOs from Russian companies, compiled a rating of CEOs taking into consideration financial and ESG indicators of companies, considered influence of the CEO’s position in this overall rating on financial indicators of a company. The research sample comprises 81 Russian companies of the real sector which are in the Moscow Exchange index and 123 CEOs. The time interval covered by this research is seven years since 2013 to 2019. Analysis was performed in the statistics package STATA applying panel data analysis as a method. Return on assets, return on equity and the market capitalization indicator were used as dependent variables. We chose disclosure of ESG information by a company, CEO’s score in the overall rating and such CEO’s characteristics as age, tenure and financial education as explicative variables. Financial leverage and company size were used as control variables. We also added return on assets to some model specifications in order to improve the model quality.
Downloads
References
Triyani, A., Setyahuni, S. W., & Kiryanto, K. (2020). The Effect Of Environmental, Social and Governance (ESG) Disclosure on Firm Performance: The Role of Ceo Tenure. Jurnal Reviu Akuntansi Dan Keuangan, 10(2). https://doi.org/10.22219/jrak.v10i2.11820 DOI: https://doi.org/10.22219/jrak.v10i2.11820
Freeman, S., & Cavusgil, S. T. (1984). Strategic management. A stakeholder approach. Journal of International Marketing, 15(4).
Schuler, D. A., & Cording, M. (2006). A corporate social performance-corporate financial performance behavioral model for consumers. In Academy of Management Review (Vol. 31, Issue 3). https://doi.org/10.5465/AMR.2006.21318916 DOI: https://doi.org/10.5465/amr.2006.21318916
Baron, D. P. (2008). Managerial contracting and corporate social responsibility. Journal of Public Economics, 92(1–2). https://doi.org/10.1016/j.jpubeco.2007.05.008 DOI: https://doi.org/10.1016/j.jpubeco.2007.05.008
Faisal, F., Prastiwi, A., & Yuyetta, E. N. A. (2018). Board Characteristics, Environmental Social Governance Disclosure and Corporate Performance : Evidence From Indonesia Public Listed Companies. The 2018 Fifth International Conference on Governance and Accountability.
Aureli, S., Gigli, S., Medei, R., & Supino, E. (2020). The value relevance of environmental, social, and governance disclosure: Evidence from Dow Jones Sustainability World Index listed companies. Corporate Social Responsibility and Environmental Management, 27(1). https://doi.org/10.1002/csr.1772 DOI: https://doi.org/10.1002/csr.1772
Li, Y., Gong, M., Zhang, X. Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. British Accounting Review, 50(1). https://doi.org/10.1016/j.bar.2017.09.007 DOI: https://doi.org/10.1016/j.bar.2017.09.007
Velte, P. (2019). Does CEO power moderate the link between ESG performance and financial performance?: A focus on the German two-tier system. Management Research Review, 43(5). https://doi.org/10.1108/MRR-04-2019-0182 DOI: https://doi.org/10.1108/MRR-04-2019-0182
Atan, R., Alam, M. M., Said, J., & Zamri, M. (2018). The impacts of environmental, social, and governance factors on firm performance: Panel study of Malaysian companies. Management of Environmental Quality: An International Journal, 29(2). https://doi.org/10.1108/MEQ-03-2017-0033 DOI: https://doi.org/10.1108/MEQ-03-2017-0033
Hang, M., Geyer-Klingeberg, J., & Rathgeber, A. W. (2019). It is merely a matter of time: A meta-analysis of the causality between environmental performance and financial performance. Business Strategy and the Environment, 28(2). https://doi.org/10.1002/bse.2215 DOI: https://doi.org/10.1002/bse.2215
Garcia-Blandon, J., Argilés-Bosch, J. M., & Ravenda, D. (2019). Exploring the relationship between CEO characteristics and performance. Journal of Business Economics and Management, 20(6). https://doi.org/10.3846/jbem.2019.10447 DOI: https://doi.org/10.3846/jbem.2019.10447
Navarro, P. (1988). Why Do Corporations Give to Charity? The Journal of Business, 61(1). https://doi.org/10.1086/296420 DOI: https://doi.org/10.1086/296420
Jensen, M. C. (2002). VALUE MAXIMIZATION, STAKEHOLDER THEORY, AND THE CORPORATE OBJECTIVE FUNCTION Michael C. Jenseti. Business Ethics Quarterly, 12(2). DOI: https://doi.org/10.2307/3857812
Aerts, W., Cormier, D., & Magnan, M. (2008). Corporate environmental disclosure, financial markets and the media: An international perspective. Ecological Economics, 64(3). https://doi.org/10.1016/j.ecolecon.2007.04.012 DOI: https://doi.org/10.1016/j.ecolecon.2007.04.012
Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P. (2008). Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis. Accounting, Organizations and Society, 33(4–5). https://doi.org/10.1016/j.aos.2007.05.003 DOI: https://doi.org/10.1016/j.aos.2007.05.003
George, E., Chattopadhyay, P., Sitkin, S. B., & Barden, J. (2006). Cognitive underpinnings of institutional persistence and change: A framing perspective. Academy of Management Review, 31(2). https://doi.org/10.5465/AMR.2006.20208685 DOI: https://doi.org/10.5465/amr.2006.20208685
Finkelstein, S., & Hambrick, D. C. (1990). Top-Management-Team Tenure and Organizational Outcomes: The Moderating Role of Managerial Discretion. Administrative Science Quarterly, 35(3). https://doi.org/10.2307/2393314 DOI: https://doi.org/10.2307/2393314
Miller, D. (1991). Stale in the saddle: CEO tenure and the match between organization and environment. Management Science, 37(1). https://doi.org/10.1287/mnsc.37.1.34 DOI: https://doi.org/10.1287/mnsc.37.1.34
Levinthal, D. A., & March, J. G. (1993). The myopia of learning. Strategic Management Journal, 14(2 S). https://doi.org/10.1002/smj.4250141009 DOI: https://doi.org/10.1002/smj.4250141009
Miller, D., & Shamsie, J. (2001). Learning across the life cycle: Experimentation and performance among the Hollywood studio heads. Strategic Management Journal, 22(8). https://doi.org/10.1002/smj.171 DOI: https://doi.org/10.1002/smj.171
Gupta, A. K. (1988). The dynamics of taking charge, by John J. Gabarro, Boston: Harvard Business School Press, 1987, 204 pp. $22.95. Human Resource Management, 27(4). https://doi.org/10.1002/hrm.3930270406 DOI: https://doi.org/10.1002/hrm.3930270406
Hambrick, D. C., Geletkanycz, M. A., & Fredrickson, J. W. (1993). Top executive commitment to the status quo: Some tests of its determinants. Strategic Management Journal, 14(6). https://doi.org/10.1002/smj.4250140602 DOI: https://doi.org/10.1002/smj.4250140602
Finkelstein, S., & D’aveni, R. A. (1994). CEO Duality as a Double-Edged Sword: How Boards of Directors Balance Entrenchment Avoidance and Unity of Command. Academy of Management Journal, 37(5). https://doi.org/10.5465/256667 DOI: https://doi.org/10.2307/256667
Westphal, J. D., & Zajac, E. J. (1995). Who Shall Govern? CEO/Board Power, Demographic Similarity, and New Director Selection. Administrative Science Quarterly, 40(1). https://doi.org/10.2307/2393700 DOI: https://doi.org/10.2307/2393700
Zhuang, Y., Chang, X., & Lee, Y. (2018). Board composition and corporate social responsibility performance: Evidence from Chinese public firms. Sustainability (Switzerland), 10(8). https://doi.org/10.3390/su10082752 DOI: https://doi.org/10.3390/su10082752
Lewis, B. W., Walls, J. L., & Dowell, G. W. S. (2014). Difference in degrees: CEO characteristics and firm environmental disclosure. Strategic Management Journal, 35(5). https://doi.org/10.1002/smj.2127 DOI: https://doi.org/10.1002/smj.2127
Khan, T. M., Gang, B., Fareed, Z., & Yasmeen, R. (2020). The impact of CEO tenure on corporate social and environmental performance: an emerging country’s analysis. Environmental Science and Pollution Research, 27(16). https://doi.org/10.1007/s11356-020-08468-y DOI: https://doi.org/10.1007/s11356-020-08468-y
Ben Mohamed, E., Jarboui, S., Baccar, A., & Bouri, A. (2015). On the effect of CEOs’ personal characteristics in transport firm value? A stochastic frontier model. Case Studies on Transport Policy, 3(2). DOI: https://doi.org/10.1016/j.cstp.2015.01.001
McBrayer, G. A. (2018). Does persistence explain ESG disclosure decisions? Corporate Social Responsibility and Environmental Management, 25(6). https://doi.org/10.1002/csr.1521 DOI: https://doi.org/10.1002/csr.1521
Wiersema, M. F., & Bantel, K. A. (1992). Top Management Team Demography and Corporate Strategic Change. Academy of Management Journal, 35(1). https://doi.org/10.5465/256474 DOI: https://doi.org/10.2307/256474
Barker, V. L., & Mueller, G. C. (2002). CEO characteristics and firm R&D spending. Management Science, 48(6). https://doi.org/10.1287/mnsc.48.6.782.187 DOI: https://doi.org/10.1287/mnsc.48.6.782.187
Dechow, P. M., & Sloan, R. G. (1991). Executive incentives and the horizon problem. An empirical investigation. Journal of Accounting and Economics, 14(1). https://doi.org/10.1016/0167-7187(91)90058-S DOI: https://doi.org/10.1016/0167-7187(91)90058-S
Borghesi, R., Houston, J. F., & Naranjo, A. (2014). Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests. Journal of Corporate Finance, 26. https://doi.org/10.1016/j.jcorpfin.2014.03.008 DOI: https://doi.org/10.1016/j.jcorpfin.2014.03.008
Chaganti, R. S., Zimmerman, M. A., Kumaraswamy, A., Maggitti, P., & Arkles, J. B. (2016). TMT Characteristics , Time-to-IPO and Firm Performance. Journal of Management & Public Policy, 7(2).
Gottesman, A. a, & Morey, M. R. (2010). CEO educational background and firm financial performance. Journal of Applied Finance, 2.
Bertrand, M., & Schoar, A. (2003). Managing with style: The effect of managers on firm policies. Quarterly Journal of Economics, 118(4). https://doi.org/10.1162/003355303322552775 DOI: https://doi.org/10.1162/003355303322552775
Mintzberg, H. (2005). Seven — Plus or Minus a Couple. Academy of Management Learning Education, 4(2). DOI: https://doi.org/10.5465/amle.2005.17268575
Geletkanycz, M. A., & Black, S. S. (2001). Bound by the past? Experience-based effects on commitment to the strategic status quo. Journal of Management, 27(1). https://doi.org/10.1016/S0149-2063(00)00084-2 DOI: https://doi.org/10.1016/S0149-2063(00)00084-2
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2–3). https://doi.org/10.1016/S0304-405X(01)00044-7 DOI: https://doi.org/10.1016/S0304-405X(01)00044-7
Slater, D. J., & Dixon-Fowler, H. R. (2010). The future of the planet in the hands of MBAs: An examination of CEO MBA education and corporate environmental performance. Academy of Management Learning and Education, 9(3). https://doi.org/10.5465/AMLE.2010.53791825 DOI: https://doi.org/10.5465/amle.9.3.zqr429
Arayssi, M., Jizi, M., & Tabaja, H. H. (2020). The impact of board composition on the level of ESG disclosures in GCC countries. Sustainability Accounting, Management and Policy Journal, 11(1). https://doi.org/10.1108/SAMPJ-05-2018-0136 DOI: https://doi.org/10.1108/SAMPJ-05-2018-0136
Hansen, M. T., Ibarra, H., & Peyer, U. (2010). The best-performing CEOs in the world. Harvard Business Review, 88(1–2).
Hansen, M., Ibarra, H., & Peyer, U. (2013). The Best-Performing CEOs in the World: (cover story). Harvard Business Review, 91(1), 81–95.
Velte, P. (2017). Does ESG performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 8(2). https://doi.org/10.1108/jgr-11-2016-0029 DOI: https://doi.org/10.1108/JGR-11-2016-0029
Roberts, P. W., & Dowling, G. R. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23(12). https://doi.org/10.1002/smj.274 DOI: https://doi.org/10.1002/smj.274
Hair J.F, Black W.C, Babin B.J, A. R. E. (2010). Multivariate data analysis. In Prentice-Hall, Upper Saddle River. (Vol. 23)
Copyright (c) 2022 National Research University Higher School of Economics

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.