Corporate Environmental Strategy: Institutional and Governance Perspectives

Abstract

This dissertation suggests that the greening of the corporate governance mechanisms—meaning efforts to tie executive compensation to environmental targets (incentive) and to enhance board responsibility over environmental performance (monitoring)—induces managers to comply with pressures to lower toxic emissions in the U.S. high polluting industries.

Although emphasis has been placed on the benefits of greater use of both incentive and monitoring mechanisms to improve corporate environmental performance, there is little consideration given to the potential costs associated with their implementation. I argue that mechanisms of incentive in the form of environmental compensation may serve as substitute of mechanisms of monitoring by the environmental board committee.

However, contrary to my expectations, results show that incentive and monitoring are positively associated. Nonetheless, I suggest that these mechanisms are most effective in improving environmental performance when adopted under specific circumstances of environmental risk. I found that the existence of environmental compensation is positively associated with firms' environmental risk. Furthermore, there is weak evidence showing that environmental board committees are more prevalent in firms that face conditions of moderate environmental risk.

This dissertation employs a panel regression model with random-effects. The sample consists of the S&P500 firms that are required to report toxic emissions to the Toxic Release Inventory, years 2006 to 2011. Data was collected from proxy statements, annual reports, and various other databases.