Bright is the moon over my home village: Chinese local executives and environmental decoupling

Abstract

This study investigates whether and how local executives' hometown identities affect enterprises' environmental decoupling. Environmental decoupling refers to the discrepancy between a company's environmental sustainability promises and its actual environmental sustainability performance. Based on the place attachment theory, we expect local executives to engage in fewer corporate environmental decoupling actions than non-local executives. Using the annual data for Chinese companies listed on the A-share market between 2009 and 2021, we tested this hypothesis. Our findings reveal that local executives' sense of identification and belonging to their hometowns lessens the likelihood of businesses engaging in environmental decoupling. This result is more pronounced for companies located in regions with low population mobility, a slow marketization process, strict environmental regulations, and companies with high financing constraints and low corporate governance levels. Furthermore, we find that local executives decrease underreporting of the environmental performance of firms, thereby reducing firms' environmental decoupling. Following several robustness tests, the primary conclusions remain valid. This study offers new evidence that executive characteristics affect company sustainability from an environmental performance decoupling standpoint. It shows that identifying the executives' hometowns motivates them to uphold a sincere commitment to corporate social responsibility.