CEO power, regulatory pressures, and carbon emissions: An emerging market perspective

Abstract

AbstractThis study examines whether powerful CEOs and the strength of the regulatory pressures influence firms’ decisions to disclose their carbon emissions. Powerful CEOs are examined in three dimensions, i.e. CEO ownership power, CEO structural power, and CEO expert power. Focusing on firms listed on Bursa Malaysia and employing logistic regression models with clustered standard errors, the results show a negative association between CEO ownership power, measured in terms of ownership interest, and firms’ decisions to disclose carbon emissions. These results align with the findings of prior studies and provide support for agency theory, suggesting that entrenchment effects occur when CEOs own large ownership interest in the firms, thus adversely impacting carbon disclosure decisions. The results also show a positive association between the strength of the regulatory pressures and carbon disclosure decisions, supporting the institutional theory prediction that firms respond to external pressures by adjusting their organizational structure. These inferences are robust to additional sensitivity analyses, including the Heckman’s (1979) selection bias correction, alternative specifications of the ownership interests, and validation of the regulatory pressures. The results demonstrate that an indirect pressure exerted by Bursa Malaysia through the adoption of mandatory sustainability reporting has a positive impact on carbon disclosure. To further enhance carbon emissions reporting, it is timely for regulators to consider implementing direct measures, such as mandatory GHG reporting, to address associated challenges.

Keywords

• climate change
• carbon emissions
• carbon disclosure
• CEO ownership
• CEO power
• Malaysia