Top Executives’ Political Appointments and Environmental Performance of Firms

Abstract

We examine the effect of top executives’ political appointments on the environmental performance of firms. Building on resource dependence theory, we first suggest that a board chair’s political appointment protects the firm from environmental regulations, motivating the chair to sacrifice environmental performance for economic gains. We then apply the Confucian social model to explain that a chair’s political appointment can reflect the chair’s prosocial motives, motivating the chair to increase the firm’s environmental performance. We further theorize that if political appointment mainly reflects a chair’s motive to obtain protection from regulatory agencies, a chair’s power within a firm shall not moderate the effect of the chair’s political appointment. In contrast, if political appointment mainly reflects the chair’s prosocial motives, the chair’s power within a firm shall significantly strengthen the effect of the chair’s political appointment. Using a large-scale and longitudinal data of privately-controlled firms that are publicly traded in China, we find considerable support for the resource dependence mechanism but not for the Confucian social model: a chair’s political appointment reduces a firm’s environmental performance, measured by a comprehensive index of environmental outcomes and by green patents, and chair power does not moderate the effect of political appointment.