Air pollution and executive incentive: Evidence from pay-performance sensitivity |
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| Institution: | 1. School of Business, Zhengzhou University of Aeronautics, China;2. School of Finance, Nankai University, China;3. School of Accounting, Nanjing University of Finance and Economics, No. 3 Wenyuan Road, Xianlin Street, Qixia District, Nanjing, Jiangsu, China;4. Faculty of Science, McGill University Montreal, Quebec, Canada;1. Singapore Management University, Singapore;2. University of Wollongong, Australia;1. China''s Management Accounting Research & Development Center & School of Accountancy, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing 100081, China;2. University of Edinburgh Business School, Edinburgh, UK;3. Shanghai University of Finance and Economics, Shanghai, China;1. Government Accounting Research Institute, Research Institute of Social Science, Zhongnan University of Economics and Law, China;2. School of Economics, Huazhong University of Science and Technology, China;3. School of Finance, Zhongnan University of Economics and Law, China;1. The Olayan School of Business, American University in Beirut, Lebanon;2. Cardiff Business School, Cardiff University, UK;3. European Corporate Governance Institute, Belgium |
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| Abstract: | Based on the China's non-state-owned listed corporates in 2014–2020, we adopt the real-time air quality index data published by the Ministry of Environmental Protection of China as the proxy of air pollution to examine how air pollution affects firm's CEO pay–performance sensitivity (PPS). The results of logistic regression show that air pollution is negatively correlated with the executives' PPS. We also find that industrial and regional characteristics is heterogeneous by exploring the interaction effect of CEO. In addition, our study indicates that the influence of air pollution on PPS is more significant in companies with improved performance and we provide a possible explanation of this based on the theory of resource category equivalence. The mechanism test shows that air pollution increases the firms' difficulty to motivate executives, it also destroys the effectiveness of compensation contracts and significantly reduces the PPS by increasing explicit and implicit incentive. Furthermore, we investigate the economic consequences of air pollution. Results show that air pollution would damages the firm value directly and also affect their PPS. Overall, our study reveals how air pollution affects executives' incentive, therefore provides policy support to developing countries to balance the relationship between economic development and environmental protection. |
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