Effects of Board Independence on Greenhouse Gas Emissions and Financial Consequences: Evidence from South Korea

Abstract

Because of climate change issues, greenhouse gas (GHG) emissions have been emerging as an important research topic in recent years. This study examines the role of corporate governance in reducing GHG emissions by focusing on board independence. We use the industry fixed effect panel regression model to analyze data from 156 listed South Korean firms during the period from 2011 to 2019. Our results suggest that board independence is related positively with the reduction in GHG emissions. In addition, our evidence shows that firms with higher levels of GHG emissions have better financial performance, but board independence weakens the relation. Our findings imply that an independent board tends to focus on balancing the firm’s financial versus environmental performance. This quantitative study contributes to our understanding of the effects of corporate effects on firms’ GHG emissions and their financial consequences. The findings have implications for corporate managers and policymakers with respect to choosing corporate governance structures that reduce GHG emissions effectively.

Keywords

• board independence
• corporate governance
• greenhouse gas (GHG)
• environmental performance
• financial performance
• ESG