Top managers' environmental experience and corporate environmental violations: Evidence from China

Abstract

This study examines the effect of top managers' environmental experience on corporate environmental violations. We find that top managers' environmental experience is negatively associated with the likelihood and frequency of corporate environmental violations in China. Our conclusions are robust after addressing the potential endogeneity problems through matched-sample analyses and the difference-in-differences approach. Furthermore, the mechanism analyses show that top managers with environmental experience reduce corporate environmental violations by improving firms' environmental awareness, environmental expertise, and resources. Moreover, we find that the negative association between top managers' environmental experience and corporate environmental violations is more pronounced when firms face lower corporate governance pressure or when firms are subject to weaker government environmental governance pressure. Finally, we find that shareholders react much more positively to the appointment announcements of top managers with environmental experience, suggesting that the stock market does value top managers' environmental experience. Our findings offer important implications by showing that it is helpful to hire top managers with environmental experience to improve firms' environmental sustainability, which could be important for other emerging markets, which, like China, are facing increasing environmental deterioration.