Environmental, Social and Governance Performance: Analysis of CEO Power and Corporate Risk

Abstract

This study explores the relationship between a company’s Environmental, Social, and Governance (ESG) performance, and corporate risk. Moreover, the study emphasizes how CEO power moderates this relationship. Using a sample of Chinese A-share listed enterprises from 2011 to 2018, it is found that better ESG performance can reduce firms’ risk. The negative relationship between ESG performance and corporate is stronger for the company with greater CEO power. This link is weaker for state-owned firms and stronger for firms with lower institutional investor holdings. Furthermore, ESG performance mainly affects enterprise risk through three channels: firm reputation, information transparency, and internal control. Generally, firms with better ESG performance are more likely to have sound risk management frameworks. Our findings provide empirical evidence for implementing an ESG information disclosure system and promoting responsible investment in the capital market.