Abstract
This paper complements the literature on green finance by probing whether air pollution matters for CEO compensation. Using a sample covering 240 cities in 31 provinces in China from 2005 to 2017, we document a positive association between air pollution and CEO compensation. These findings indicate that firms headquartered in areas with unhealthy air compensate their CEOs with higher pay than those headquartered in areas with better air quality. Moreover, two potential channels are validated to interpret the positive pollution-pay linkage: income comparison and executive shortage. Finally, we show that air pollution attenuates the pay-performance sensitivity, indirectly confirming an essential role of the living environment in determining CEO compensation.
| Original language | English |
|---|---|
| Pages (from-to) | 448-469 |
| Number of pages | 22 |
| Journal | Journal of Economics and Management Strategy |
| Volume | 31 |
| Issue number | 2 |
| Early online date | 5 Oct 2021 |
| DOIs | |
| Publication status | Published - 1 Apr 2022 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2021 Wiley Periodicals LLC.
Funding
We acknowledge the helpful comments from Daniel Spulber (the editor) and two anonymous reviewers. Liu acknowledges the financial support by the National Natural Science Foundation of China (No. 71702153), and the Fundamental Research Funds for the Central Universities (No. SXYPY202119). The usual caveats apply.
