i
Master Thesis
The CEO Effect and Corporate Environmental Performance of Emerging
Markets Firms: The influence of International Experience, Age and
Educational Background and the Moderating Role of Board Independence
Nadia Zahar S3848221
n.zahar@student.rug.nl
Supervisor: Dr. O. Lindahl Co-assessor: Dr. B.J.W. Pennink
MSc International Business & Management
University of Groningen, Faculty of Economics and Business Date of Submission: January 20th, 2020
ii
Abstract
The interest of academic research has shifted recently from firms’environmental actions as response to institutional and stakeholder pressures, to the role chief executive officers (CEO) play in determining corporate environmental performance (CEP). However, to date, litte research has been done in this regard and most studies on the relationship between CEO characteristics and CSR practices and performance are based on samples of firms from developed countries, which limits the generalizability of these findings. Hence, this thesis aims to contribute to exisiting theory by investigating the effects of CEO international experience, CEO age and CEO educational background on CEP within a sample of 117 firms from emerging markets countries. Building on upper echelons theory, it is hypothesized that because of their influence on organizational outcomes and them being involved in allocating firm resources, CEOs characteristics will explain a significant proportion of the variation in CEP. In addition, the moderating effect of board independence is tested, as it is excpected that a more independent board will interact with the CEO in shaping the firm’s environmental strategies. The regression analysis shows that while CEO age and CEO educational background measured as MBA degree positively affect CEP, the influence of CEO international experience is insignificant. Moreover, board independence, despite the correlation results, does not moderate the effects of CEO characteristics on CEP. The findings of this study have important implications for research on executives’characteristics and organizational outcomes and corporate governance literature, and for managerial practice.
Keywords: Corporate Environmental Performance (CEP),Upper Echelons, CEO
iii Table of Contents Abstract …... II List of Figures ... V List of Tables ... V List of Abbreviations ... V 1. Introduction ... 1 2. Literature review ... 4
2.1 Corporate Environmental Performance ... 4
2.2 Upper Echenlons Theory & CEO Characteristics ... 7
2.3.CEP & the Board of Directors ... 9
2.4 Hypothesis Development ... 11
2.4.1 CEO International Experience & CEP ... 11
2.4.2 CEO Age & CEP ... 13
2.4.3 CEO Educational Background & CEP ... 14
2.4.4 Moderating Effect of Board Independence ... 15
2.5 Conceptual Model ... 17 3. Research Methodology... 17 3.1 Data Collection ... 18 3.2 Sample ... 19 3.3 Measures ... 20 3.3.1 Dependent Variables ... 20 3.3.2 Independent Variables ... 21 3.3.3 Moderating Variable ... 21 3.3.4 Control Variables ... 21
3.4 Preliminary Data Analysis... 23
4. Results ... 24
4.1 Descriptive Statistics ... 24
4.2 Regression Results ... 28
5. Discussion ... 29
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6.1 Theoretical Implications ... 33
6.2 Practical Implications ... 34
6.3 Limitations and Future Research ... 35
References ... 37
Appendices ... i
Appendix A ... i
Table 1: Headquarter countries and frequencies ... i
Table 2: Industry coding and frequencies ... i
Appendix B ... ii
Table 1: Test for checking normal distribution of residuals ... ii
Table 2: Test for checking normal distribution of residuals ... ii
Table 3: VIF test for checking multicollinearity ... ii
Table 4: Durbin-Watson test for independence of errors ... ii
Graph 1: Normal P-P Plot of Standardized Residual ... iii
Graph 2: Test for homoscedasticity ... iii
v
List of Figures
Figure 1: Conceptual Model ... 17
List of Tables
Table 1: Descriptive Statistics ... 25 Table 2: Correlation Matrix ... 26 Table 3: Regression Analysis ... 28
List of Abbreviations
BRICS Brazil, Russia, India, China, South Africa CSR Corporate Social Responsibility
CSP Corporate Social Performance
CEP Corporate Environmental Performance CEO Chief Executive Officer
e.g. exempli gratia
ESG Environmental, Social, Governance i.e. Id Est
IMF International Monetary Fund
ISO International Organization for Standardization R&D Research & Development
ROE Return on Equity
1 1. Introduction
Across the globe managers are more and more expected to deal with issues of socially and environmentally responsible firm performance. Regulatory initiatives in various countries and major stakeholders are demanding corporations to implement higher levels of corporate social responsibility (CSR) on all its dimensions, and international organizations such as the World Bank, IMF and the UN are encouraging corporations to do so (Jenkins, 2005). The environmental aspect of CSR became particularly relevant after Rio Declaration on Environment and Development (UN, 1992), which fostered sustainable development as a social priority for governments, companies and individuals globally. While much of the academic interest in firm’environmental actions has focused on how institutional and stakeholder pressures can lead companies to integrate to a lesser or greater extent environmental management practices into their corporate strategy (e.g. Delmas & Toffel, 2004; Hoffmann, 1999), little is known about why firms exhibit diverse strategies when facing these pressures. At the firm-level, board composition has been found to be an important predictor of corporate environmental performance (CEP) (e.g. Kassinis and Vafeas, 2002; Rao, Tilt & Lester 2012). For instance, firms with a higher proportion of women directors are more likely to exhibit a superior environmental performance (Post, Rahman & Rubow, 2011).
Moving forward, a body of research has acknowledged that corporate leaders might play a significant role in explaining the hetereogeneity of environmental practices (Cordano & Frieze, 2000; Delmas & Toffel, 2008; Sharma, 2000). While most of this work has examined managerial interpretations of environmental issues, we have a limited knowledge of how managerial observable characteristics influence CEP. Building on the upper echelons perspective (e.g. Hambrick & Mason, 1984), organizational outcomes, both strategic choices and performance levels, can be seen as reflections of the personal values and cognitive bases of the top managers. The CEO (Chief Executive Officer), being often the key decision maker, able to control the composition of the company’s top strategy-making group and the resource allocation, is in the position to influence firm strategic actions (Waldman & Siegel, 2008; Zahra & Pearce, 1989). Therefore, CEOs will have the organizational power to develop and implement environmental practices that ultimately influence their firms’environmental performance.
2 reputation and customer loyalty (Ambec & Lanoie, 2008; Bansal & Clelland, 2004; Russo & Fouts, 1997). Scholars have also linked CEO characteristics to firm financial performance, and subsequently extended their empirical examination to executive characteristcs such as age, functional background, tenure, gender, education, international experience and other firm strategies and organizational outcomes (Barker & Mueller, 2002; Hermann & Datta, 2005; Wiersema & Bantel, 1992). However, little has been done to examine the association between CEO attributes and the environmental aspect of CSR, namely CEP (Slater & Dixon-Fowler, 2010). Studies on the effect of these characteristics on CSR related practices and outcomes such as Corporate Social Performance (CSP) not only present conflicting results but also have a limited generalizability as these studies mainly consider in their samples firms from developed countries (e.g. Huang, 2013; Manner, 2010; Thomas & Simerly, 1994). Therefore, unclear is weather their findings hold true for firms in other geographical regions such as emerging markets countries. Since little research on CSR in emerging markets has been conducted, it is important to investigate firms’ adoption of environmental practices in this context (Pisani, Kourula, Kolk & Meijer, 2017) and specifically how CEO attributes can serve as significant predictors of CEP. In these countries, because of the absence of a great civic activism and stakeholder pressure, the actions of corporate leaders may be a driving force for firms environmental commitment and hence for a higher CEP.
3 2013), its separate moderating role on the relationship between CEO characteristics and CEP does not seem to be explored yet.
The main objective of this study is to contribute to both theory and management practice by adopting an upper echelons perspective and investigating the influence of visible CEO characteristics such as international experience, age and educational background on CEP within a sample of 117 BRICS companies. Given the limited knowledge of the relationship between CEO attributes and CEP, the contradictory findings and the limitation of their generalizability to other geographical regions, this thesis aims to provide meaningful insights on the effect of executive’s characteristics on CEP and on the CEO interaction with the board of directors in this regard and bridge these research gaps by answering the following research question: “Do CEO international experience, age and educational background influence Corporate Environmental Performance of emerging markets firms and are these relationships moderated by board independence?”
By examing the association of CEO characteristics with CEP and the moderating role of board independence, this thesis contributes to strategic management literature and upper echelons research on the role top executives have in determining important organizational outcomes, as well as to the corporate governance literature. In terms of management practice, this thesis has implications for firms seeking to achieve a superior CEP and thus for the board’s appointment of the candidate CEO who is expected to contribute positively to the firm’s future CEP. In order to test the above mentioned relationships a multiple linear regression analysis based on the ordinary least square (OLS) will be conducted and secondary data will be collected from various databases and companies’ annual reports.
The following section will discuss the relevant literature and the theoretical background, where after, based on the Upper Echelons Theory, the hypothesis and a corresponding conceptual model are developed. In the second part, the methodology including a description of the data and measures is presented. Subsequently, the results of the data analysis are described and discussed. To conclude the implications for both literature, managerial practices and some directions for future research are proposed.
2. Literature review
4 Definition of CEP
Over the course of the last few decades CEP has received the attention of organizational research scholars (Trumpp, Endrikat, Zopf & Guenther, 2013). However, different notions of this multidimensional construct have been used and therefore a distinct and widely accepted definition of CEP does yet not exist (Etzion, 2007). In their study, Trumpp et al. (2013) conducted a systematic review of the articles with an explicity definition of CEP. Based on that, they argued that the definition of CEP issued by the International Organization for Standardization (ISO) in the ISO standard 14031 can be considered a consensual definition incorporating the key attributes of previous academic definitions. Since it best fits the data collected for this study and it also includes the voluntary aspect of engaging in environmental initiatives, this thesis adopts the definition provided in the ISO standard 14031 which identifies CEP as “the results of an organization’s management of its environmental aspects” (ISO 1999). Large scale policies alongside with constant public pressure for a cleaner environment have forced firms globally to undertake vast and and costly pollution control measures (Rockness, 1985). The natural environment is progressively being considered as a fundamental cornerstone of CSR. Because of the growing interest towards global issues such as those related to environmental protection, many companies are now more prone to include “green practices” (Brammer, Hoejmose & Marchant, 2012) as part of their strategies aimed to maintain or reach legitimacy from a stakeholder perspective and to preserve their reputation from a resource based view perspective (Babiak & Trendafilova, 2011). Reaching such legitimacy is valuable to firms as they can benefit from enhanced access to resources, and increased performance (Klassens and McLaughlin 1996; Konar and Cohen 2001). Considering the definition of CEP provided by ISO in the ISO standard 14031, firms can manage their environmental aspects through various strategic activities. These activities can range from beyond-compliance practices that need companies to develop specific capabilities and resources to reactive strategies that slightly meet or fail to comply with regulatory standards (e.g. Hart, 1995).
5 which the firm minimizes emissions and effluents and diminishes or removes waste through innovative processes or technologies employed all along the production process (Klassen & Whybark, 1999). As such, pollution prevention encourages firms to augment resources and build capabilities more than pollution control processes do (Russo & Fouts, 1997). It helps realize substantial savings, causing a cost advantage relative to competitors (Hart & Ahuja, 1994). In addition, pollution prevention provides the possibility to cut emissions way below required levels, lowering compliance costs (Rooney, 1993). Lastly product stewardship strategies refer to the firm’s product development and promote the use of fewer materials, toxic or not, easy recycling or reuse along the value chain (Hart, 1995). It implies the inclusion of external stakeholder perspective into product design and development processes (Fiksel, 1993). Hence, since every firm has an environmental impact, a corporate environmental strategy is the set of practices designed to reduce the extent of a fim’s “ecological footprint” (Bansal, 2005).
Current research on the Business Case for CEP
The common belief concerning environmental protection is that it entails additional costs imposed on firms, which may undermine their global competitiveness (e.g. Friedman, 1970). However, this paradigm has been challenged by many scholars in the past decade, who raised the so-called business case for going green (Gore, 1993; Porter, 1991; Porter & van der Linde, 1995). Being more committed to the environment has increasingly become a topic of discussion in current CSR research (Salzmann, Ionescu-Somers & Steger, 2005) as a number of scholars suggested that environmental management provide the firm with financial returns, and as a consequence, provide a business-relevant rationale for environmental commitment (King & Lenox, 2001). In the field of industry ecology, it is argued that in certain circumstances beyond-compliance behavior by firms is a win-win situation for both the environment and the firm (Nelson, 1994). Various reasons explain how CEP is positively related to financial returns. For instance, according to the natural resource based view of the firm, pollution prevention, product stewardship, and sustainable development strategies constitute important firm capabilities and resources, which create a competitive advantage (Hart, 1995). Better environmental performance may make it easier to access to certain markets. Indeed, reducing pollution and other environmental impacts may boost the image or reputation of a company, and therefore raise customers’ loyalty or support sales efforts (Ambec & Lanoie, 2008).
6 way possible while still maintaining the high quality of its products and services, and ability to reduce compliance costs and innovate (e.g. Aragon-Correa, 1998; Porter & van der Linde, 1995). Beside reducing operating cost, better environmental performance can also prevent sanctions by regulators or future penalties, lower environmental concerns and risks associated with the relations between a firm and its external stakeholders (e.g. government, communities, ecological groups) (Bergman, Wicks, Kotha & Jones, 1999).
Some authors also argued that better environmental performance can result in a reduction in the cost of labor. Engaging in ECSR (Environmental Corporate Social Responsibility) lead to an improved atmosphere in the workplace and thus to higher productivity. It may also positively influence existing employees’ motivation and retention (Bhattacharya, Sen, & Korschun, 2008) and may strengthen corporate values and eventually organizational identity (Carmeli, Gilat, & Waldman, 2007). However, to date there is no empirical evidence for a reduction of labour costs associated with less pollution (Ambec & Lanoie, 2008).
When analyzing the relationship between environmental performance and firm performance, Porter (1991) showed that the benefits of environmental management practices are greater than the costs and that stricter regulatory standards would instead lead to innovation. Further, Gimenez Leal, Casadesús Fa & Valls Pasola (2003) claimed that there is a direct and positive correlation between the adoption of environmental practices and the firm’s competitive position as these practices implementation often provide a firm with new technologies, better reputation, and attractiveness of high-level human capital (Russo & Fouts, 1997). Drawing upon instrumental stakeholder theory, involvement in cooperative and ethical behavior reduces agency and transaction costs, allowing a firm to more effectively satisfy the needs of different stakeholder groups (Jones, 1995; Freeman & Evan, 1990). From an institutional perspective (e.g. DiMaggio & Powell, 1983), CEP provides legitimacy and reputational gains to the firm as well (Bansal & Clelland, 2004). Legitimacy in turn may enhance a company’s ability to compete for resources and achieve stakeholder approval (Rao, 1994).
7 overcomply with environmental regulations and present themselves as being environmentally concerned are recompensated in the market. However, it is argued in response to Porter (1991), that there are no reasons for which firms adopt profit increasing innovations as a consequence of stricter regulations (Palmer, Oates & Portney, 1995). Moreover, because win-win situations are very rare and the amount of some investment for regulation compliance is very large, financial returns to environmental commitment are likely to be negative (Walley & Whitehead, 1994). Despite the criticism, the business-case advocates have shown that ECSR can have various positive effects which may exceed the costs. Much of the empirical ‘pays to be green’ research has supported the proposed positive relationship between pollution reduction, that is environmental performance, and financial gains, or financial performance (King & Lenox, 2001).
2.3 Upper Echelons Theory & CEO characteristics
8 paper on upper echelon theory, pointed out that many characteristics have been proven to be linked to strategic decisions and firm performance outcomes.
In upper echelon research, the empirical examination has gone beyond the associations between the conventional demographic characteristics (e.g. age, education, tenure) and firm financial performance to a wider set of executive characteristics and, firm outcomes and strategic actions (Carpenter et al., 2004; Hambrick, 2007). Hambrick & Mason (1984) argued that firms run by younger CEOs take more risk, resulting in more or larger-scale strategic actions, by contrast older CEOs, more interested in protecting their wealth, might be more dedicated to the status quo and less inclined to take risk (Serfling, 2014). Barker and Mueller (2002) found that older CEOs tend to undertake less R&D spending, while Herrmann (2002) found that older CEOs engage in less international diversification. Some scholars suggest a negative relationship between CEO tenure and firm strategic decisions. Indeed, the longer the tenure, the more CEOs are concerned about their legacies and are less willing to pursue new risky investments which could undermine those legacies (Matta & Beamish, 2008). In addition, during their tenure, CEOs gain power, knowledge, and skills to stand up to pressure from other stakeholders (Meyer, 1975). CEO formal education has been positively associated to strategic actions involving innovation and change (Kimberly and Evanisko, 1981). As regards CEO prior career experience, evidence has been found of the positive relationship between the various professional and institutional experiences an executive had prior to becoming CEO and strategic dynamism, and therefore future performance (Crossland, Zyung, Hiller, Hambrick, 2014). Some studies showed that gender diversity boost the monitoring process (Molero, 2011) and should improve the performance of firms attempting to growth (Dwyera, Richard, & Chadwick, 2003; Krishnan & Parsons, 2008). Khan & Vieito (2013) found that the firm risk level is smaller when the CEO is a female, thus demonstrating that CEO gender counts in terms of firm performance. With respect to CEO compensation, conclusions are diverse as some authors find a positive relationship with firm performance (Carpenter & Sanders, 2002; Finkelstein & Boyd, 1998); by contrast others find a negative relationship (Basu, Hwang, Mitsudome & Weintrop, 2007; Matolcsy, Shan & Seethamraju, 2012). It is however evident that also this characteristic influence firm’s strategic actions and organizational outcomes.
2.2 CEP & the Board of Directors
9 The board of directors is the most important decision-making body in a company. Each major operational or strategic decision, such as mergers and acquisitions and changes in capital structure, must be approved by the board. Since it is a strategic decision, a firm’s policy towards the natural environment must pass through the board. Despite having little actual power over decision-making compared to executives, boards are after all responsible for corporate environmental strategy (Kassinis & Vafeas, 2002) by being also involved in stakeholder management (Rao & Tilt, 2016). To deal with environmental issues, boards may, for instance, create separate standing committees. Dixon-Fowler, Ellstrand & Johnson (2017) have shown that board environmental committees positively influence CEP, because the existence of a voluntary environmental committee on the board communicates a firm’s commitment to environmental matters. The magnitude, depth, and sincerity of discussion on environmental issues within the board itself are likely to determine, largely, the quality of corporate environmental actions (Kassinis & Vafeas, 2002).
Drawing upon the arguments of the business-case advocates that CEP is positively associated with financial returns and therefore shareholder wealth, implementation of strong environmental practices should represent a major objective for boards of directors (de Villiers, Naiker & van Staden, 2011). Particularly, prior studies on the relationship between board-level characteristics and environmental performance found that when the concentration of independent directors is higher, firms achieve a superior environmental performance (de Villiers et al., 2011; Post, Rahman & Rubow, 2011; Shaukat, Qui & Trojanowski, 2016). Kassinis and Vafeas (2002) also found that firms whose boards are larger and composed of more executives tend to have the higher number of environmental violations. By contrast, Walls et al. (2012) in their meta-analysis on the link between corporate governance and environmental performance showed that more independent and larger boards do have a negative impact. In addition, more diverse boards can soften detrimental environmental performance more effectively (Walls et al., 2012). Taken together, these findings on the relationship between the board of directors and firm’s adoption of environmental practices suggest that the boards and their composition matter for the extent to which a firm reduces its environmental impact.
Functions of the Board
10 dependence theory respectively (Hillman & Dalziel, 2003). Directors have the responsibility to monitor managers on behalf of shareholders, because as argued by the agency theory, conflict of interests may arise from the separation of ownership and management in organizations. Hence the fiduciary responsibilities of directors to ensure that management acts in line with the shareholders’ interest (Fama & Jensen, 1983). Agency costs, derived from the tendency of managers to pursue their self-interest to the cost of profit-maximization, may be reduced by boards’ monitoring function and as such firm performance may be improved (Fama, 1980; Mizruchi,1983). According to agency theory, the main determinant of an effective monitoring function is board incentives. In this regard, many scholars agreed on the assumption that boards dominated by independent outside directors are considered to be better monitors because they lack the disadvantage to monitor that instead insiders or outsiders dependent on CEO/organization have (Barnhart, Marr, & Rosenstein, 1994; Baysinger & Butler, 1990; Daily, 1995). However, despite many empirical studies, Dalton, Daily, Ellstrand, & Johnson (1998) in their meta-analysis showed that there is not a casual relationship between independent directors and better monitoring and therefore firm performance. Another incentive, equity compensation of directors, has not been found to be related positively to firm performance (Dalton, Daily, Certo & Roengpitya, 2003).
11 On the basis of the past literature, it can be argued that the board of directors plays an important role in a firm’s strategic decision-making by providing knowledge, guidance and resources. Moreover well functioning boards are most likely to support their companies in pursuing strong environmental policies by securing that executives address the issue with the proper amount of effort (Berrone & Gomez-Mejia, 2009; Russo & Harrison, 2005).
2.4 Hypothesis development
2.4.1 CEO international experience & CEP
One of the executive characteristics that has received particular attention by scholars is the international experience (IE), namely the experience of living and working in a foreign country (e.g., Carpenter, Pollock & Leary, 2003; Gregersen, Morrison & Black, 1998). Studies on executive IE and corporate outcomes have largely investigated the positive relationship between the foreign exposure of top managers and the level of firm internationalization (e.g., Athanassiou and Nigh, 2000; Carpenter et al., 2003; Carpenter & Fredrickson, 2001). Other studies have gone further, proposing a relationship between CEO international experience, greater firm internationalization and increased financial performance (Carpenter, Sanders & Gregersen, 2001; Daily, Certo & Dalton, 2000; Sambharya, 1996).
12 stakeholders. In addition, the acquired knowledge of the CEO about foreign cultures, their way of doing business and other countries’ institutions is valuable for the MNEs operating overseas and struggling with different normative, cognitive and regulatory institutions (Black, 1997; Melin, 1992). Gong (2006) found that building legitimacy amongst stakeholder groups for the purpose of creating stakeholder value is largely influenced by the international experience of the CEO. Indeed, Jensen (2010) claimed that an organization cannot maximize value if it neglects the interest of its stakeholders. One important way to gain legitimacy among stakeholders is by engaging in CSR practices and CSR disclosure (Du & Vieira, 2012). International assignment experience provides also the CEO with an increased global network (Suutari and Makela, 2007). When facing new and difficult social issues, the CEO has a valuable network to use for advice or aid in designing friendly practices towards the local communities and environment. The experience of living and working in a foreign country may also influence the cognitive orientation of executives (Hermann and Datta, 2005; Ricks et al., 1990). According to some authors, executives often declare that their international assignment experience has durable impacts on their worldviews and how they manage their companies (Carpenter et al., 2000; Gregersen et al., 1998; Kohonen, 2004). Furthermore, past research on a CEO’s prior career experience (Dearborn & Simon, 1958; Lawrence & Lorsch, 1967) suggests that prior career experience including positions in overseas companies can influence “the knowledge, skills, attitudes, values, and information processing that they bring to bear when making future judgments and decisions about firm strategy” (Wang et al., 2016, p. 783). We draw upon upper echelon theory, by which organizational outcomes are a reflection of the executives’ choices which are affected by how executives interpret situations based on their experiences, values and personalities, and on the above mentioned arguments to hypothesize the positive effect of CEO international experience on CEP. We can expect a CEO of an emerging markets’ firm with international assignment and work experience to be more aware of global issues such as environmental protection and sustainability, how to deal with them, and to be more attentive to the demands of the key stakeholders, including communities which can be directly affected by their actions. As such the following hypothesis is constructed:
H1: Having a CEO with international experience will be positively related to corporate environmental performance.
14 H2: Having an older CEO will be positively related to Corporate Environmental Performance.
2.4.2 CEO Educational Background & CEP
While a body of research suggests that executives’educational level can have a significant influence on corporate behaviours and outomes (e.g. Hambrick, Cho & Chen, 1996; Norburn & Birley, 1988; Wiersema & Bantel, 1992), some authors have further looked at the effect of particular fields of study (e.g. Huang, 2012; Manner, 2010; Tyler & Stensma, 1998). Notably, the organizational implications of having executives with MBA (Master in Business Administration) degrees has aroused interest in research which, however, produced conflicting results (Finkelstein, Hambrick & Cannella, 2009). While many studies have focused on firm outcomes such as innovation and firm performance (e.g. Barker & Mueller, 2002; Bertrand & Schoar, 2003), very little research has examined the effect of CEOs holding an MBA on a firm’s environmental performance. In particular, Lewis, Walls & Dowell (2014) found that CEOs with MBAs a are more likely to consider institutional pressures to voluntary disclose environmental information as a strategic opportunity to improve firm’s reputation and legitimacy (Bansal & Clelland, 2004; Hart, 1995) than other firms executives. Slater & Dixon-Fowler (2010) in their study found that CEOs with MBAs have a significant positive influence on CEP. However, both papers focused on samples of US companies, and therefore their findings may not hold true for firms in other geographical regions.
15 schools, MBA students are taught that benefits can be gained from engaging in environmental initiatives. In contexts such as emerging markets countries, incentives to invest in pollution control and prevention may come from capital markets because individual investors respond positively to the news of superior CEP (Dasgupta, Laplante & Mamingi, 2001). Drawing from a business-case perspective, according to which CEOs have a financial motivation for engaging in environmental initiatives and from literature, whereby MBA graduates will pursue profits by benefiting from any opportunity, it can be argued that CEOs with MBA degrees will positively impact CEP. Indeed, they will be more likely to recognize opportunities for enhancing their firm’s value and as such more likely to adopt environmental management practices that lead to a higher CEP. Hence, the following hypothesis is constructed:
H3: Having a CEO with an MBA degree will be positively related to Corporate Environmental Performance.
2.4.3 Moderating effect of Board Independence
Board independence is one of the board’s attributes that has been examined before by scholars in the broad relationship between corporate governance and CSP and CEP (e.g. de Villiers, Naiker & Van Staden, 2011; Post, Rahman & Rubow, 2011; Shauqat, Qui & Trojanowski, 2016). However, while there seems to be quite evidence for its direct positive effect, the moderating effect of board independence remains still unexplored. Accordingly, this thesis aims to investigate the influence of indipendent directors on CEOs’ strategic decisions toward environmental matters.
16 more independent board affects positevely a firm’s environmental performance (de Villiers et al., 2011; Post et al., 2011; Shauqat et al., 2016). Drawing upon agency and resource dependence theory, an argument can be made for the positive moderating role of board independence on the relationship between CEO characteristics and CEP. Dependent inside directors, because of their affiliation with the internal management and their interest for the shareholder wealth maximization, may be less likely to show concern for the firm’s environmental performance as the adoption of environmental management practices is considered to be a long-term investment (Klassen & McLaughlin, 1996). As a consequence, given the important role of the board for corporate environmental strategy (Kassinis & Vafeas, 2002), the positive effects of having an older CEO with international experience and with an MBA degree, may be weaker if there is a high portion of inside directors. On the contrary, a more independent board not only can bring the necessary diversity of knowledge, expertise, experience and links (Fama and Jensen 1983; Pfeffer and Salancik 1978) but having no personal interest in the company and though against short-term financial performance aims, may feel that dealing with environmental issues is in the best long-term interest of the stockholders and of the company (Johnson & Greening, 1999). Therefore, it can be suggested that the positive effects of CEO International Experience, CEO Age and CEO Educational Background on CEP will be stronger in the presence of a higher portion of independent directors as inside directors may be more concerned about short term financial performance and driven by a personal interest. Rather, the interests of a more independent board and the CEO will be more aligned and the latter will be offered advice and counsel for achieving a superior CEP in the company’s interest. Hence, the following hypothesis are constructed:
H4a: A higher proportion of independent directors will positively moderate the positive effect of CEO international experience on corporate environmental performance.
H4b: A higher proportion of independent directors on the board will positively moderate the positive effect of having an older CEO on corporate environmental performance.
H4c: A higher proportion of independent directors on the board will positively moderate the positive effect of CEO having an MBA degree on corporate environmental
performance.
17 H1 H2 H4a-c H3 + + + +
In order to summarize the above proposed hypothesis derived from theory, a conceptual model is drawn up (Figure 1). This describes the proposed relationships between CEO characteristics in terms of international experience (H1), age (H2) and educational background on CEP. The positive moderating effect of board independence (H4a-c) on the positive influence of CEO characteristics on CEP is also included in the model.
Figure 1: Conceptual model 3. Research Methodology
This section presents the methodology used to test the hypothesis. Firstly, information regarding data collection will be provided. Secondly, the sample will be described as well as the measures used for this thesis. Lastly, data analysis will be outlined.
3.1 Data collection
A quantitative approach is applied to explore the aforementioned relationships between CEO characteristics and CEP with the moderating effect of board independence. As sources for the secondary data, databases accessible for students of the University of Groningen and publicly available data are used. The data for the dependent variable Corporate Environmental Performance is collected from Thomson Reuters ESG database. The CEO data for the indipendent variables International Experience, Age and Educational background is mainly obtained via companies’ annual reports and where not available, LinkedIn and Bloomberg executives’ profiles and CVs are used to fill in missing data. The data regarding the moderating variable, Board Independence, is obtained via BoardEx database which provides access to
18 reliable board data of more than 800,000 companies worldwide, while companies’ annual reports are used to fill any gaps. The data for the control variables, Firm Age, Firm Profitability, Firm Size and Industry is mainly retrieved from Orbis database and companies’annual reports.
Prior research on CEP relied on qualitative approaches (Sarkis et al., 2010; Sullivan, 2009; Wang et al., 2018). However, Dragomir (2018) showed that measuring CEP with quantitative data is possible as well. He argued that only three external databases include environmental data covering multiple dimensions of CEP: Bloomberg ESG database, the MEPI Project and Thomson Reuters ASSET4 ESG research database. Given the nature of the sample, the latter is used since it is the only one including companies outside the US. It also provides a wider spectrum of indicators, and thus it can ensure more validity to the CEP construct (Dragomir, 2018). The data for the dependent variable refers to the the latest year from which data, the Environmental Score, is available for the majority of firms, that is 2017. Although independent variables, CEO International Experience, Educational background and Age can be assumed to stay constant, to capture a causality effect, data for explanatory variables is time-lagged. In fact, according to Geletkanycz & Hambrick (1997) the translation process of strategic decision-making of executives into visible organizational outcomes occurs after a certain amount of time. Moreover, studies argued that changes due to board composition (i.e. independence) are expected to develop over time (Carter, D’Souza, Simkins, & Simpson, 2010). As there is no consensus on the ideal lag period, for the purposes of this study a one year lag for all independent, moderating and control variables is employed.
3.2 Sample
19 country, in order to have a more diverse sample on which to test the hypothesis. Moreover, data on largest corporation is more available as they are expected by law to disclose information. Forbes’ list of the world’s 2,000 largest public companies from 2019 entails 20 Brazilian, 22 Russian, 57 Indian, 251 Chinese and 12 South African firms which is a total of 342 firms. However, financial companies are excluded due to the specificity of their operational activity. The financial sector does not belong to the polluting sector since it does not impact the environment by direct emissions or the use of resources in the way other industries do (Weber et al., 2014). This leads to an initial sample of n=197 companies.
Not all the firms belonging to these countries can be included in the sample due to the limited time for this study and firms are left out when data is not available for all variables, including the control variables. In addition, because this study aims to test whether CEO characteristics can be considered predictors at the individual level of a firm’s environmental performance, only companies whose CEO is the same person for both 2016 and 2017 are included in the sample. Hence, in order to reach a sufficient, more balanced sample size and avoid a huge dominance of Chinese companies, those firms are matched with the 100 largest, according to operating revenue, listed companies in each country. The final sample consists of n=117 companies. According to the formula theorized by Tabachnick & Fidell (2007, p. 123), the threshold for an acceptable sample size is equal to N>50+8 per indipendent variable. Therefore, given the presence of three independent, one moderating and four control variables, the sample of 117 companies fulfills the minimum requirement. Appendix A: table 1 shows details of the sample.
3.3 Measures
3.3.1 Dependent Variable
Corporate Environmental Performance
20 be able to use a variety of indicators, a quantitative design is adopted and data is obtained from Thomson Reuters ESG database.
Thomson Reuters ESG score is the replacement of the Asset4 database which has been used in other studies on CSR (Aouadi & Marsat, 2018; Chollet & Sandwidi, 2018). Thomson Reuters ESG database has a global coverage with more than 7000 public companies being rated. It provides objective, relevant and systematic environmental, social and governance (ESG) information about companies performance. Companies receive both an overall ESG Score which reflects company’s ESG performance, commitment and effectiveness based on publicly reported data and a score for each dimension. More than 400 measures are collected and grouped into 10 categories. Each combination of categories within the same domain corresponds to the three Pillar Scores: environmental, social and corporate governance. These have different weight for the overall ESG score: Environmental represents 34%, Social represents 35,50% while Governance counts for 30,50% (Refinitiv, 2019).
The environmental pillar of our interest consists of 61 measures and its score ranges from 0 (low performance) to 100 (high performance). Some measures are qualitative metrics, namely Boolean questions, and depending on whether the company provides the data or not, the corresponding value can be ‘Yes’ or ‘No’. Others are quantitative metrics and if the company provides the data a numeric value is transcribed. A percentile rank formula is used when measures are reported, while not reported quantitative measures are not considered for the purpose of the score. For the Environmental pillar, the three categories are: Resource Use Score to which correspond 19 measures and it “reflects a company’s performance and capacity to reduce the use of materials, energy or water, and to find more eco-efficient solutions by improving supply chain management”; Emission Reduction Score consisting in 22 mesures and it “measures a company’s commitment and effectiveness towards reducing environmental emissions in the production and operational processes”; Innovation Score with 20 measures, “reflects a company’s capacity to reduce the environmental costs and burdens for its customers, thereby creating new market opportunities through new environmental technologies and processes or eco-designed products” (Refinitiv, 2019: 16).
3.3.2 Independent Variables
21 had international experience through assignment or by working as a board or management member of foreign companies, 0 indicates otherwise. CEO age is simply measured in years as a continuous variable. CEO educational background is measured as a categorical variable, where 1 stands for the CEOs holding an MBA degree and 0 for otherwise.
3.3.3. Moderating Variable Board Independence
In line with previous studies, board independence is measured as the percentage of outside
independent directors over the number of total board members (Post et al., 2011, Westphal &
Zajac, 1994). An indipendent director is a director with no personal or professional dependence from the company (Pearce & Zahra, 1991), while a dependent director is a director who has a financial interest or any affiliation with the company.
3.3.4 Control Variables
In order to isolate the effect that CEO characteristics have on CEP, control variables such as firm-level factors will be included in line with previous works on CEP (de Villiers et al. 2011; Rao and Tilt 2016).
Firm Age
It has been shown that older firms are more likely to own the necessary facility to cope with environmental issues at a reduced cost (Mohana-Neill, 1995). Moreover, it is expected that the older the firm gets, the more estabished its reputation of social and environmental engagement will be (Yin, 2017) Badulescu et al., (2016) found evidence that younger companies tend to be less worried on engaging on CSR activities also because their priorities are still on aspects such as sales, internal processes and distribution. Hence, firm age is controlled for and measured as the natural log of the number of years a firm has been established.
Firm Profitability
22 with prior studies (e.g. Harjoto et al., 2015; Zhang, 2012). Return on equity is measured using the ratio of net income to shareholder´s equity. Data is is one-year lagged in comparison to the dependent variable, since it is expected that the amount of resources allocated to manage a firm’s environmental aspetcs depends on how much the firm is profitable.
Firm Size
Several studies have shown that larger firms are more likely to pinpoint environmental issues as a distinct management priority and cope with it successfully as they have more resources (Al-Tuwaijri, Christensen & Hughes, 2004; Clarkson, Li, Richardson, & Vasvari, 2008). Moreover, Vogel (2005) asserted that the larger a firm, the greater its social and environmental responsibility. Hyun, Yang, Jung & Hong (2016) argued that firm size might be related to CSR performance because larger firms are more notable and thus, might face more attention from media and public opinion, which leads them to engage more in CSR related activities in order to give a good image of the firm. As such, firm size is included as a control variable and is measured as the total number of employees. Since firm size is a variable that is often non normally distributed, in this thesis, the number of employees is transformed in its natural logarithmic function.
Industry
Previous studies argued that more environmental information is disclosed by firms in environmentally sensitive industries characterized by negative externalities (Cho & Patten, 2007; Halme & Huse, 1997; Patten, 2002). These firms also tend to manage more efficiently their environmental impacts. In fact, they are expected to face major exposure to the public policy pressure (Cho & Patten, 2007). Therefore, sensitive industries are controlled for using a dummy variable. If a firm operates in an environmentally sensitive industry the variable is coded 1, and 0 otherwise. In accordance with the above mentioned studies, sensitive industries are characterized by SIC codes between 800-899 (Forestry), 1000-1099 (Metal Mining), 1200-1399 (Coal Mining and Oil and Gas Exploration), 2600-2699 (Paper and Pulp Mills), 2800-3099 (Chemicals, Pharmaceutical and Plastics Manufacturing), 3300-3399 (Iron and Steel Manufacturing), 4900-4999 (Electricity, Gas and Wastewater).
23 In this study the proposed hypothesis are tested by performing a multiple linear regression analysis based on OLS (Ordinary Least Squares) using the software IBM SPSS Statistics (Version 25). This statistical method serves to assess the association between two or more independent variables and a single continuous dependent variable, which is the aim of this paper. Before conducting the main regression analysis, it is necessary to test whether the variables and the data meet the assumptions that are required for linear regression to give a valid result.
First, the normal distribution assumption is tested, as deviations from normality weaken the validity of statistical outcomes (Hair et al., 1998). In this regard, the Shapiro-Wilk test and the Skewness and Kurtosis tests are run. These tests show that CEP, CEO IE, CEO Age, Ln(FirmSize) and Industry are the only normally distributed variables. However, this should not be an issue for the analysis since the normal distribution of variables is not an essential requirement for linear regression as opposed to the normal distribution of residuals (Lumley, Diehr, Emerson, & Chen, 2002).
Hence, in order to make valid inferences from the regression, a test for the normality of residuals is run. The results suggest that residuals do not significantly differ from normality. In particular, the z-values for Skewness and Kurtosis are within +/-1.96 (Appendix B: Table 2), while the result of Shapiro test (.870) is far above the minimum threshold of significance (p>0.05). In addition, the normality P-P plot shows that the residuals closely follow the straight line which is the condition for true normal distribution (Appendix B: Graph 1).
Third, the presence of significant outliers that could bias the model need to be identified to ensure that the outcome of the regression is valid. The boxplots produced by SPSS identify only few potential outliers. However according to research in this context (Hoaglin & Iglewicz, 1987), these outliers detected by SPSS may not be considered as such since they do not really influence the regression line. Thus no outliers affect the sample.
Since no correlation should exist between the explanatory variables in order to assess the unique effects of the individual predictors, multicollinearity is tested using the variance inflation factor (VIF) (Appendix B: Table 3). All VIF values are below the maximum threshold of 10 and tolerance levels are greater than 0,10 (Acock, 2010). As a result, this test indicates that there is no issue of multicollinearity.
24 significance table, this value is above the upper value (dL=1,357). Hence, the assumption of independence of errors is met (Savin & White, 1978).
Lastly, the presence of heteroskedasticity, which leads to inconsistent estimates (Field, 2009), is tested by displaying a scatterplot of the standardized residuals. Since the scatterplot shows a random distribution, it can be concluded that the assumption of homoscedasticity is fulfilled (Hayes, 2013) (Appendix B: Table 4,5).
4. Results
In this section, first, results of the descriptive statistics and correlation tables are presented and subsequently the results of the regression analysis to test the hypothesis of this thesis are described.
4.1 Descriptive statistics
25 decrease. For Firm Age the minimum decreases from 6 to 1.79, and the maximum, from 166 to 5.11. For Firm Size, measured in number of employees, the minimum drops from 1600 to 7.38, and the maximum, from 508757 to 13.14. The average company has a Profitability measured in return of equity of 13.54% (SD=13.605). Furthermore, the minimum value related to profitability, -30.60%, shows that at least one company reported a loss in the year 2016.
Table 1: Descriptive statistics
N Min Max Mean SD
CEP 117 18.37 93.62 64.04 14.39
CEO IE 117 0 1 0.52 0.502
CEO Age 117 34 69 54.07 6.607
CEO Educational Background 117 0 1 0.30 0.46 Board Independence (%) 117 0 83.30 46.59 14.881 Firm Age 117 6 166 37.77 28.826 Firm Profitability (%) 117 -30.60 57.73 13.54 13.605 Firm Size 117 1600 508757 53308.82 92457.926 Industry 117 0 1 0.53 0.501 Ln(FirmAge) 117 1.79 5.11 3.380 0.702 Ln(FirmSize) 117 7.38 13.14 10.077 1.218
Note: dependent variable refers to 2017, independent and control variables to 2016. Correlations
26 to be significantly correlated to CEO Educational Background (.193*), suggesting that CEOs with international experience are more likely to hold an MBA. Interesting is how there is a strong and positive correlation between Ln(FirmAge) and Board Independence (.326**) indicating that older firms tend to have a higher ratio of independent directors, while Ln(FirmSize) is negatively correlated to Board Independence (-.264**). Moreover Ln(FirmSize) correlates negatively and significantly to Firm Profitability (-.241**), suggesting that as a firm becomes larger, its profitability tends to decrease. This result contradicts the conventional winsdom that a positive relationship between firm size and profitability exists (Lee, 2009; Hall & Weiss, 1967) and previous findings suggesting that firm size is not related to firm’s performance. However, it may also be due to the specific features of emerging markets firms.
Table 2: Correlation Matrix
27
4.2 Regression results
Table 3 presents the results of the regression analysis. Model 1 evaluates the effects of the control variables on CEP excluding the independent variables. The control variables account for 17.7% of the variance in CEP (R2=.177). Firm Profitability has a significant negative effect on the dependent variable (B= -.297, p≤.01), while both Ln(FirmAge) and Industry depict significant positive effects.
Model 2 analyses the effect of the independent variable CEO International Experience in addition to the four control variables. CEO IE does not significantly affect CEP (p=.326) despite a high positive coefficient (B=2.650). The non-significant effect is also confirmed in the general regression analysis in model 5 (B= 2.739, p=.297). Therefore, Hypothesis 1 on CEO International Experience as a predictor of a higher CEP finds no support.
In Model 3 the impact of the independent variable CEO Age on CEP is tested. The inclusion of CEO Age increases the explanatory power of the model up to an R2=0.225. The results show that CEO Age depicts a positive effect on CEP (B=0.487) at a significant level (p≤.01). Such results are also evident in the general regression model 6 (B=.545, p=.004). Hence, hypothesis 2 finds support and it can be accepted.
Model 4 tests the effect of the independent variable CEO Educational Background on the dependent variable. In line with the hypothesized effect, CEO Educational Background does have a high positive influence on CEP (B=4.507), although at a low significance level of 10% (p=.101). Although Model 9 testing the interaction with the moderator shows a positive but non-significant effect (B=3.930, p=.166), both the main regression analysis in model 5 and model 6 depict a higher statistical significance (p=.063, p=.087). Hence, both models support hypothesis 3 which can therefore be accepted.
28 does not seem to positively moderate the relationships between CEO characteristics and Corporate Environmental Performance and hypothesis 4a-c
cannot be accepted.
Table 3: Regression Analysis
Note: N=117; Standard errors in parantheses, ***p≤0.01, **p≤0.05, *p≤0. Corporate Environmental Performance
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Independent variables CEO IE 2.650 (2.687) 2.739 (2.613) 2.257 (2.657) 2.179 (2.726) CEO Age .487 (.186)*** .545 (.185)*** .538 (.186)*** .482 (.187)** CEO Ed Backg 4.507 (2.726)* 5.032 (2.677)* 4.672 (2.701)* 3.930 (2.820) Moderating Variable Board Independence .091 (.090) -.015 (.136) .133 (.092) .104 (.103) Interactions CEO IE X Board Independence .231 (.175) CEO Age X Board
Independence -.002
(.012) CEO Ed Backg X Board
29
5. Discussion
Drawing upon the upper echelons theory, the purpose of this study is to provide further insights and understandigs of the influence of chief executives on organizational outcomes and firms` strategic decisions, by examining the effects of international experience, age and educational background on Corporate Environmental Performance. Specifically, given the growing concern for environmental management practices, this thesis examines the above mentioned relationships in a sample consisting of 117 emerging markets firms. Indeed, despite their importance in terms of a rapid economic and industrial development, these set of countries remained unexplored by current CSR research, which is instead focused on developed countries. Additionally, this thesis investigates whether certain corporate governance practices, such as board independence, have a moderating role and interact with the CEO’s figure.
The findings are consistent with most previous research on this topic. The CEO does matter in determining important firm outcomes which can be partially predicted from managerial characteristics (Hambrick & Mason, 1984). While age and holding an MBA may be important predictors of a firm’s environmental performance, international experience does not seem to have a significant impact. Moreover, no evidence has been found for board independence’s role as a moderator. Hence, the results allow us to adfirm that, considering the sample of companies under investigation, CEO characteristics do influence firm’s strategic decsions even in the unexplored context of emerging markets countries. Overall, CEO characteristics predict a significant percentage of the variance in CEP (21.2%)
30 considering only the control variables. Such results may have different explanations. The first reason concerns the measurement of IE. This thesis employed a binary variable for assessing whether a CEO had international experience or not, without however considering differences in depth or breadth between CEOs’experiences, such as the number of countries they worked in and the number of international work assignments, as done by prior sudies (Hermann & Datta, 2005, 2006; Sambarhya, 1996). This may have lead to include in the same category CEOs with relatively little international experience as compared to executives with a longer and more significant experience. Another reason may be related to the nature of the samples. Slater & Dixon-Fowler’s (2009) study is based on sample of 393 CEOs of large US companies, therefore these findings may not be applicable to different contexts, such as that of emerging markets’firms. Further, the fact that the focus of this study is only on one aspect of CSR, that is CEP, relative to Resource Use, Emissions Reduction and Innovation may have affected the results. Differently, in Slater & Dixon-Fowler’s (2009) paper, CSP is measured by including in addition to the environmental impact, also the dimensions of community, diversity, employee relations, product safety and quality. Lastly, it may be possible that a third variable could influence the relationship between CEO International Experience and CEP. Previous studies found that companies with CEOs with longer tenure are more likely to be associated with greater CEP (Huang, 2012: Cho, Cho & Lee, 2018). Hence, despite a positive effect, IE migh act as a predictor of CEP depending on the lenght of the CEO tenure, as the longer the tenure, the greater the influence on firm outcomes.
31 (p≤0.01) in all models. Also, when included, regression models show the highest R-squared variations. This means that CEO Age is, among the managerial characteristics object of this study, the most influential for a higher CEP.
The relationship between CEO Educational Background and CEP has been subject of few studies, however, they all seem to depict the same positive association between a CEO having an MBA and a firm’s environmental performance and disclosure. Particularly, consistent with Huang (2012), Slater & Dixon-Flawer (2010) and Lewis, Walls & Dowell (2014), CEOs with MBAs have a significant positive effect on CEP. CEO Educational Background is also the variable with the highest positive coefficients both when testing its impact while controlling for other firm-level characteristics – in model 4 (B=4.507) – and in the main regression analysis – in model 5 (B=5.032). Hence, against the MBA criticisms according to which MBA education is irrelevant for an effective management, namely CEP strategies (e.g. Pfeffer & Fong, 2002), and produces profits-first mentality with no concern for social responsibility (e.g. Ghoshal, 2005), this study finds that CEOs with MBAs are expected to pursue environmental management practices in order to maximize their firm’s value and that ultimately leads to a higher CEP. However, the issue of reverse causality needs to be considered as it might affect the positive association between CEO Educational Background and CEP in such a way that it becomes the result of, for instance, firm-level characteristics, individual-level characteristics and self-selection. While this study tries to address this issue through the one-year lag to better capture a causality effect, the results could still be affected.It cannot be excluded that firms with higher CEP could attract executive candidates with MBA degrees because of their inclination towards environmental sustainibility matters or that firms scoring high on environmental performance are interested in hiring CEOs with MBA education. Neverthless, this finding adds further important evidence to the discovered relationship by prior research. Specifically, the nature of the given sample allows to establish that the positive significant relation applies also for firms based in emerging markets setting and for CEOs who earned their MBA degrees in countries other than the developed ones.
32 Villiers et al., 2011). This may be due to differences in the nature of the samples or in the industries to which firms belong. As far as the positive moderating effect of Board Independence on CEO characteristics on CEP is concerned, this study finds no support for the hypothesized effect. Despite the significant correlations with CEO International Experience and CEO Educational Background, Board Independence does not interact significantly with the CEO figure in developing firm’s environmental strategies. Moreover, the interaction with CEO Age is even negative. Since in the sample, the ratio of independent directors has an average of 45.96%, it may be possible that the regression analysis does not depict any significant effect because many firms have a relatively low portion of outside directors and this is mainly due to the concentrated ownership structure characterizing emerging markets firms. The fact that a large part of the shares is owned by the government, blockholders or family members may have an influence on the board composition and the relative importance of the resources and different perspectives brought in by outside directorss. Hence the assumption that Board Independence positevely influence a firm’s adoption of efficient environmental strategies may not hold true for other national contexts, where having more independent directors does not necessarily lead a firm to be more committed to environmental CSR. Instead, inside directors may have the same motivation of independent directors to enhance the firm’s value and reputation by pursuing a better environment performance, as the latter is positively related to financial returns and strategic benefits (Klassen and McLaughlin, 1996).
33 industries are associated with more environmental disclosure and are also most likely to adopt stronger environmental strategies. Finally, Firm Size does not seem to be a significant predictor of a higher CEP.
6. Conclusion
The main objective of this thesis is to contribute to existing research on managerial characteristics and their influence on firm outcomes by exploring the following research question: Do CEO International Experience, Age and Eeducational Background influence Corporate Environmental Performance of emerging markets firms and are these relationships moderated by Board Independence? On the basis of the discussed literature and the findings of this study, many theoretical and practical implications can be drawn. Along with these, in this final section limitations and suggestions for future research are presented.
6.1 Theoretical Implications
This study makes a relevant contribution to the body of literature on CEO characteristics and their influence on an increasingly important firm outcome, CEP. Bulding on Upper Echelons theory, the findings on the positive significant effects of CEO Age and CEO Educational Background provide evidence for the assumption that the visible attributes of a CEO, the main decision maker within a company, are likely to have a significant influence on how firms decide to manage the firm’s environmental aspects even after controlling for several firm-level factors. In particular, the positive significant effect of CEO Age, not previously tested, may suggest the need to explore additional CEO and executive characteristics that could be related to CEP. Therefore, this study contributes to strategic management literature by adding to the old debate as to whether executives do have a role in determining organizational outcomes and firm strategies (e.g. Thomas, 1988; Weiner & Mahoney, 1981).
34 An additional contribution is given to corporate governance literature by studying the yet unexplored moderating effect of Board Independence between CEO characteristics and CEP. While there seems to be consistency in research regarding its direct positive effect (de Villiers et al., 2011; Post et al., 2011), this study finds that Board Independence neither affects directly CEP nor has a significant role as a moderator. Since in previous studies the sampled firms belonged to developed countries, this thesis shows that differences in corporate governance systems and practices may lead to a different, perhaps not relevant, board’s impact on organizational outcomes such as CEP. The results show that board of directors and executives are not interrelated in shaping firm environmental strategies in the emerging markets context. This is contrary to Kor (2006) and Wu (2008) expectations on the role boards have in encouraging and providing consultations on executives’ strategic decisions. These findings also mean for theory and research on international corporate governance that agency theory may not be fully supported in the specific setting of emerging markets countries. In fact, independent directors by failing to encourage CEOs to undertake costly, but profitable environmental practices, are not effective in aligning the interests of shareholders and management, and therefore do not seem to help alleviate potential agency conflicts regarding environmental CSR decisions.
6.2 Practical implications
