Annual Conference

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Corporate Finance

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May 2022

CEO Hometown Favoritism in Corporate Environmental Policies

We exploit within-firm variations in plant-level toxic releases to document the effect of managerial hometown favoritism on corporate environmental policies. We find that pollution intensity is 20% lower for plants near CEOs’ hometowns, and this reduction is facilitated by waste management efforts such as source reduction, recycling, and energy recovery. Analyses using CEO turnover provide causal inference. Hometown emission reduction is stronger for poorly governed firms, and is significantly weakened following the 2003 dividend tax cut that mitigates agency conflicts. In addition, hometown emission reduction is most salient for firms with worse CSR performance or more financial constraints. Our findings reveal that CEOs’ personal motives affect corporate pollution abatement, and this manifests as an agency problem.
Keywords: CEO, Hometown favoritism, Corporate environmental policies, Corporate social responsibility (CSR)
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