IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v69y2024ipas1544612324010973.html
   My bibliography  Save this article

The impact of CEO hedging on corporate ESG performance: Evidence from the United States

Author

Listed:
  • Wang, Yanuo
  • Xie, Zhengying
  • Geng, Haipeng
  • Croce, Jorry

Abstract

Corporate ESG performance is increasingly recognized as crucial for sustainable development, yet the impact of CEO behavior on this metric remains understudied. This paper investigates how CEO hedging affects corporate ESG performance, addressing a significant gap in the literature. Using data from U.S. listed companies from 2013 to 2021, we employ regression analysis and propensity score matching to examine this relationship. Our findings reveal that CEO hedging significantly reduces corporate ESG performance. Further analysis shows that the CEO's shareholding ratio and corporate risk enhance this negative correlation, while external supervision mitigates it. Heterogeneity analysis indicates a stronger correlation in low-polluting enterprises. These results underscore the ethical implications of CEO option trading for personal risk hedging and highlight the importance of avoiding behaviors that can adversely affect a firm's ESG performance. Our study contributes to the understanding of corporate governance and sustainable development, offering valuable insights for policymakers and corporate leaders in designing effective strategies to enhance ESG performance.

Suggested Citation

  • Wang, Yanuo & Xie, Zhengying & Geng, Haipeng & Croce, Jorry, 2024. "The impact of CEO hedging on corporate ESG performance: Evidence from the United States," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324010973
    DOI: 10.1016/j.frl.2024.106067
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324010973
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.106067?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    2. Hunjra, Ahmed Imran & Bouri, Elie & Azam, Muhammad & Azam, Rauf I & Dai, Jiapeng, 2024. "Economic growth and environmental sustainability in developing economies," Research in International Business and Finance, Elsevier, vol. 70(PA).
    3. Zhang, Rongxin & Aljumah, Ahmad Ibrahim & Ghardallou, Wafa & Li, Zeyun & Li, Jinhua & Cifuentes-Faura, Javier, 2023. "How economic development promotes the sustainability targets? Role of natural resources utilization," Resources Policy, Elsevier, vol. 85(PA).
    4. Kevin Aretz & Söhnke M. Bartram, 2010. "Corporate Hedging And Shareholder Value," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(4), pages 317-371, December.
    5. Chen, Tao & Harford, Jarrad & Lin, Chen, 2015. "Do analysts matter for governance? Evidence from natural experiments," Journal of Financial Economics, Elsevier, vol. 115(2), pages 383-410.
    6. Baker, Edward D. & Boulton, Thomas J. & Braga-Alves, Marcus V. & Morey, Matthew R., 2021. "ESG government risk and international IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 67(C).
    7. Shengmin Hung & Hunghua Pan & Taychang Wang, 2019. "CEO Hedging Opportunities and the Weighting of Performance Measures in Compensation Contracts†," Contemporary Accounting Research, John Wiley & Sons, vol. 36(4), pages 2319-2343, December.
    8. Gao, Huasheng, 2010. "Optimal compensation contracts when managers can hedge," Journal of Financial Economics, Elsevier, vol. 97(2), pages 218-238, August.
    9. Carr Bettis & John Bizjak & Swaminathan Kalpathy, 2015. "Why Do Insiders Hedge Their Ownership? An Empirical Examination," Financial Management, Financial Management Association International, vol. 44(3), pages 655-683, September.
    10. Li Cai & Jinhua Cui & Hoje Jo, 2016. "Corporate Environmental Responsibility and Firm Risk," Journal of Business Ethics, Springer, vol. 139(3), pages 563-594, December.
    11. Colak, Gonul & Korkeamäki, Timo P. & Meyer, Niclas Oskar, 2024. "ESG and CEO turnover around the world," Journal of Corporate Finance, Elsevier, vol. 84(C).
    12. Mingjun Deng & Hao Tang & Wenbing Luo, 2024. "Can the green experience of CEO improve ESG performance in heavy polluting companies? Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(4), pages 2373-2392, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jongwon Park & Sunyoung Kim & Albert Tsang, 2023. "CEO Personal Hedging and Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 182(1), pages 199-221, January.
    2. Stefano Colonnello & Giuliano Curatola & Shuo Xia, 2022. "Trading Away Incentives," Working Papers 2022:16, Department of Economics, University of Venice "Ca' Foscari".
    3. Tingting Hu & Kun You & Char-Lee Lok, 2025. "State ownership, political connection and ESG performance," Risk Management, Palgrave Macmillan, vol. 27(1), pages 1-33, February.
    4. Marie‐Hélène Gagnon & Aurélien Philippot, 2020. "Are Incentive Contract Settlements Nonevents?," International Review of Finance, International Review of Finance Ltd., vol. 20(4), pages 983-992, December.
    5. Tao Chen & Shinichi Kamiya & Pingyi Lou & Andreas Milidonis, 2023. "Analyst coverage, executive compensation and corporate risk‐taking: Evidence from property–casualty insurance firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(4), pages 899-939, December.
    6. Stefano Colonnello & Giuliano Curatola & Shuo Xia, 2024. "When Does Linking Pay to Default Reduce Bank Risk?," Working Papers 2024: 07, Department of Economics, University of Venice "Ca' Foscari".
    7. Al-Own, Bassam & Minhat, Marizah & Gao, Simon, 2018. "Stock options and credit default swaps in risk management," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 200-214.
    8. Haoyi Yang & Shikong Luo, 2023. "A dark side to options trading? Evidence from corporate default risk," Review of Quantitative Finance and Accounting, Springer, vol. 60(2), pages 531-564, February.
    9. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    10. Zhu, Bo & Zhao, Yue, 2022. "Carbon risk and the cost of bank loans: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 180(C).
    11. Jianhua Tan & Kam C. Chan & Yining Chen, 2022. "The impact of air pollution on the cost of debt financing: Evidence from the bond market," Business Strategy and the Environment, Wiley Blackwell, vol. 31(1), pages 464-482, January.
    12. Jeong‐Bon Kim & Leye Li & Louise Yi Lu & Yangxin Yu, 2021. "Financial statement comparability and managers’ use of corporate resources," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 1697-1742, April.
    13. Xi, Dan & Wu, Yuze & Wang, Xue & Fu, Zhe, 2023. "Corporate social responsibility and excess perks," Journal of Empirical Finance, Elsevier, vol. 74(C).
    14. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    15. Anagnostopoulou, Seraina C. & Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2023. "Enhancement in a firm's information environment via options trading and the efficiency of corporate investment," Journal of Banking & Finance, Elsevier, vol. 149(C).
    16. Zhou, Fangzhao & Zhu, Jichen & Qi, Yawei & Yang, Jun & An, Yunbi, 2021. "Multi-dimensional corporate social responsibilities and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    17. Eunsoo Kim & Suyon Kim & Jaehong Lee, 2021. "Do Foreign Investors Affect Carbon Emission Disclosure? Evidence from South Korea," IJERPH, MDPI, vol. 18(19), pages 1-14, September.
    18. Boubaker, Sabri & Liu, Pei-Zhi & Ren, Yi-Shuai & Ma, Chao-Qun, 2024. "Do anti-corruption campaigns affect corporate environmental responsibility? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).
    19. Felician A. Kitole & Jennifer K. Sesabo & Olufunmilola F. Adesiyan & A. O. Ige & Temitope O. Ojo & Chijioke U. Emenike & Nolwazi Z. Khumalo & Hazem S. Kassem & Khalid M. Elhindi, 2024. "Greening the Growth: A Comprehensive Analysis of Globalization, Economic Performance, and Environmental Degradation in Tanzania," Sustainability, MDPI, vol. 16(24), pages 1-19, December.
    20. Tatiana Dănescu & Ioan-Ovidiu Spătăcean & Maria-Alexandra Popa & Carmen-Gabriela Sîrbu, 2021. "The Impact of Corporate Governance Mechanism over Financial Performance: Evidence from Romania," Sustainability, MDPI, vol. 13(19), pages 1-14, September.

    More about this item

    Keywords

    Ceo hedging; Corporate esg performance; Shareholding ratio; corporate risk;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324010973. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.