Does Incentive on Top Managers Influence Corporate Pollution Practices?

Abstract

Abstract:

We turn to the internal governance from the aspect of incentive on top managers to regulate corporate pollution practices. We explore how to incorporate the corporate relative performance evaluation with the incentive on top managers to regulate corporate environmental pollution. We collect data of environmental pollution practices of Chinese environmental-intensity industrial listed firms from 2004 to 2012. Applying the prospect theory, we find that corporate social relative performance is beneficial for reducing the corporate pollution, and specifically for those firms in which the top managers have political affiliations. However, corporate historical relative performance may deteriorate the corporate pollution. For details, on the one hand, there is a positive relationship between high historical relative performance and the likelihood of corporate environmental pollution, but fixed payment of top managers mitigates this relationship. On the other hand, although there is a negative relationship between the low historical relative performance and corporate environmental pollution, a high fixed payment of top managers still promote corporate practices of environmental pollution. The results indicate that introduction of the corporate social relative performance evaluation and assigning political incentive on top managers as well as signing high fixed payment of top managers when a corporation having a high historical relative performance would sufficiently forestall the propensity of corporate environmental pollutions.

Key words: environmental pollution, performance evaluation, managerial incentive, political affiliation, behavior theory

Jia Ming, Tong Li, Zhang Zhe. Does Incentive on Top Managers Influence Corporate Pollution Practices?[J]. , 2016, 28(2): 149-165,174.

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