Is It Necessary to Centralize Power in the CEO to Ensure Environmental Innovation?

Beatriz Aibar-Guzmán,José-Valeriano Frías-Aceituno

doi:10.3390/admsci11010027

Beatriz Aibar-Guzmán, José-Valeriano Frías-Aceituno

Open Access

https://doi.org/10.3390/admsci11010027

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Abstract

Using data from a sample of 4863 international firms corresponding to the period 2002–2017, this paper examines the role that chief executive officer (CEO) power plays in environmental innovation and the impact that these strategies have on financial performance. Both issues have been the subject of considerable debate in the literature, with opposite views and contradictory findings. The results indicate that investing in environmental innovations related to the use of clean technologies, ecological production processes, and the design, manufacture and commercialization of environmentally sustainable products requires that CEOs have a greater degree of power in order to support projects that do not entail a higher return in the short and medium terms. Additionally, the results show that the negative economic effect of eco-innovation reverses in the fourth and fifth years after environmental innovations were implemented. Thus, this study supports the view regarding a “bright side” of CEO power with regard to corporate sustainability.

Highlights

As a result of increasing stakeholder demands for corporate environmentally responsible behavior, in recent decades eco-innovation has become increasingly important for companies worldwide (Amore and Bennedsen 2016; Huang et al 2021) as an essential way to achieve environmental sustainability and fulfill their social responsibility (Guoyou et al 2013; Liao et al 2019; García-Sánchez et al 2020a)
This finding suggests that conferring more power to the chief executive officer (CEO) may have a positive impact on the development of eco-innovations, because she/he has the necessary autonomy to make decisions about investing in eco-innovation projects, regardless of the effect that these investments may have on business financial performance
This paper aimed to examine the role that CEO power plays in environmental innovation and the impact that these strategies have on financial performance

Summary

Introduction

As a result of increasing stakeholder demands for corporate environmentally responsible behavior, in recent decades eco-innovation has become increasingly important for companies worldwide (Amore and Bennedsen 2016; Huang et al 2021) as an essential way to achieve environmental sustainability and fulfill their social responsibility (Guoyou et al 2013; Liao et al 2019; García-Sánchez et al 2020a). Most studies have focused on examining the institutional and market factors as well as the firm characteristics that lead companies to pursue eco-innovation (Keshminder and Río 2019), whereas researchers have paid relatively little attention to the role played by the chief executive officer (CEO) in this regard (Liao et al 2019), despite being the main actor responsible for corporate strategies, including those related to corporate social responsibility (CSR) (Arena et al 2018; García-Sánchez and Martínez-Ferrero 2019; García-Sánchez et al 2020c). As eco-innovation projects are characterized by high information asymmetries (Demirel and Parris 2015) and managerial discretion (Oh et al 2016), they will be strongly influenced by the CEO’s preferences and priorities which, in turn, are affected by her/his individual characteristics, skills, and values (Arena et al 2018; Liao et al 2019; Wu et al 2020; Huang et al 2021)

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