Carbon Risk and CEO Compensation

Posted: 22 Mar 2021

See all articles by Abu S. Amin

Abu S. Amin

Central Michigan University

Ashrafee T Hossain

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Date Written: March 1, 2021

Abstract

We explore the association between CEO compensation and carbon risk using firm level emission data for US firms between 2010 and 2018. Our results show that firm’s carbon risk is positively associated with CEO’s total compensation, implying that CEO total pay (equity pay) increases by 0.17% (0.52%) if the carbon emission increases by 1%. Additional analyses show that the relationship is not driven by sample composition or omitted variables bias. To explore the causal direction of the relationship, we employ a difference-in-differences analysis using the 2016 Presidential election as an exogenous shock and find that the CEO pay-pollution sensitivity decreases after the election. In cross-sectional tests, we find evidence that the result is driven by CEOs with stronger influence or power.

Keywords: Climate Change, GHG, Carbon Risk, CEO Compensation

JEL Classification: G10; G18; G32

Suggested Citation

Amin, Abu S. and Hossain, Ashrafee T, Carbon Risk and CEO Compensation (March 1, 2021). Available at SSRN: https://ssrn.com/abstract=3794955

Abu S. Amin (Contact Author)

Central Michigan University ( email )

329 Sloan Hall
Mt Pleasant, MI Michigan 48858
United States
9897747621 (Phone)
9897746456 (Fax)

Ashrafee T Hossain

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

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