The Impact of a De Facto CEO on Environmental, Social, and Governance Activities and Firm Value: Evidence from Korea

Abstract

This study analyzes the influence of CEO types on corporate governance, focusing on de facto (substantial) CEOs. We examine how substantial CEOs impact environmental, social, and governance (ESG) activities (Hypothesis 1) and corporate value (Hypothesis 2). Data were collected from KIS-VALUE and DART (Electronic Disclosure System) from the Financial Supervisory Service, defining substantial CEOs as the highest remuneration recipients who exceed the pay of the company’s representative director. The results support Hypothesis 1, showing that companies with substantial CEOs are more likely to engage in ESG activities, potentially to improve public image while concealing self-serving behaviors. Hypothesis 2 is validated, indicating lower corporate value in companies with substantial CEOs, owing to the prioritization of personal interests over long-term profit maximization. Despite the limitations of exploring governance relationships beyond remuneration data, this study offers key contributions. It expands the research on corporate governance and ESG activities by identifying substantial CEOs through objective remuneration data. Additionally, it highlights the importance of an independent board for transparent governance and positive corporate value. Lastly, the empirical evidence shows the negative impact of misdirected ESG activities on corporate value. Using remuneration as an indicator, this study illuminates substantial CEOs’ influences on corporate value and ESG activities, providing insights for future research in this area.