The power of the CEO and environmental decoupling

Abstract

AbstractThis paper examines the impact of the power of the chief executive officer (CEO) on environmental decoupling. We define environmental decoupling as a gap between firm's claims about the environmental sustainability and actual environmental sustainability performance. Based on the managerial power theory, we argue that powerful managers are more involved in environmental decoupling and use environmental reporting in a more opportunistic manner than their less powerful peers. We analyse a dataset of 4576 firm‐year observations of US‐listed firms for the period 2002–2017. We find that powerful CEOs decouple firm's environmental performance from environmental reporting. These findings are robust to a battery of analyses and show that powerful CEOs do not show true commitment towards corporate environmental sustainability. The results provide important implications for investors, policymakers and fund managers. Useful future research recommendations are also provided to guide the research in the domain of environmental sustainability.