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CEO Hubris and Firm Pollution: State and Market Contingencies in a Transitional Economy

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Abstract

This study focuses on CEO hubris and its effect on corporate unethical behaviour—pollution in particular, and in addition examines critical institutional contingencies [state ownership (SO), political connection (PC) and industrial competition] which may moderate this effect. With data from over-polluting listed firms based on the real-time pollution monitoring system in transitional China from 2015 to 2017, we find that CEO hubris is significantly positively related to firm pollution, and that the moderating role of SO is not significant, that PC positively moderates the hubris–pollution relationship and that industrial competition negatively moderates this relationship. These findings contribute to research on the upper echelon theory, institutional theory and the growing literature on emerging economies.

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Notes

  1. IPE is a non-profit environmental research organisation registered in 2006 in China which is dedicated to collecting, collating and analysing government and corporate environmental information to build a database of environmental information. Its data have been used by several recent studies, such as Marquis and Bird (2018) and Zhou and Yin (2018).

  2. All the Pollution Lists can be downloaded from http://www.ipe.org.cn.

  3. We tested sampling bias by comparing the observations eliminated and those that remained with regard to their characteristics (firm size, age, ROA and growth rate). The results did not reveal significant differences in firm size (t = − 1.5356, p > 0.10), or age (t = 0.534, p > 0.10), or ROA (t = 0.8467, p > 0.10), or growth rate (t = − 0.5976, p > 0.10). Thus, sampling bias is not a major concern for our study.

  4. Based on the heavy pollution industry defined by the Ministry of Environmental Protection of China, this paper regards the following industries as the environmentally sensitive industry, including ‘Production and Supply of Electric Power and Heat Power’, ‘Manufacture of Textile’, ‘Manufacture of Non-metallic Mineral Products’, ‘Smelting and Pressing of Ferrous Metals’, ‘Manufacture of Chemical Fibres’, ‘Manufacture of Raw Chemical Materials and Chemical Products’, ‘Manufacture of Liquor, Beverages and Refined Tea, Mining and Washing of Coal, Production and Supply of Gas’, ‘Extraction of Petroleum and Natural Gas’, ‘Processing of Petroleum’, ‘Coking and Processing of Nuclear Fuel’, ‘Manufacture of Medicines, Smelting and Pressing of Non-ferrous Metals’ and ‘Manufacture of Paper and Paper Products’.

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Acknowledgements

This work is supported by the National Natural Science Foundation of China (Grant Nos. 71672194, 71372064, 71431006), Key Projects of Philosophy and Social Sciences Research of Ministry of Education of China (Grant No. 16JZD013), Natural Science Foundation of Hunan (Grant No. 2017JJ3398) and Social Science Foundation of Hunan (Grant No. 17YBA407). The authors thank the Editors and referees for their helpful comments and suggestions.

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Authors and Affiliations

  1. Collaborative Innovation Center of Resource-Conserving & Environment-Friendly Society and Ecological Civilization, School of Business, Central South University, Changsha, China

    Lu Zhang, Shenggang Ren, Xiaohong Chen & Dayuan Li

  2. Hunan University of Commerce, Changsha, China

    Xiaohong Chen

  3. School of Business and Management, Queen Mary University of London, London, UK

    Duanjinyu Yin

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  1. Lu Zhang
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Correspondence to Dayuan Li.

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Appendix

Appendix

Calculation of the Pollution Index

Since 2015, the Institute of Public and Environmental Affairs (IPE), a non-profit environmental research organisation registered in 2006 in China, has collected real-time monitoring pollutant emissions data published on provincial-level platforms for Chinese publicly listed companies. In 2007, China implemented the state key monitoring company list system, in which all major polluting enterprises are included, accounting for 65% of the nation’s total enterprise emissions. Inaugurated in 2013, the provincial-level platforms require all state key monitoring companies to report their emissions in real time. Based on these raw data, IPE weekly compiles a Pollution List containing the 20 highest polluters based on the Pollution Index. The Index considers the frequency and severity of a firm’s pollution discharges above the regulatory standard, which is calculated as follows:

$${\text{Pollution}}\;{\text{Index}}={\text{exceeding}}\;{\text{days}}\;{\text{of}}\;{\text{a}}\;{\text{week}}/7\,*\,50\% +{\text{exceeding}}\;{\text{rate}}\;{\text{of}}\;{\text{the}}\;{\text{week}}\,*\,50\% ,$$

where an exceeding day of a firm is identified if a certain pollutant in the same discharge outlet exceeds regulatory standards three times a day, an exceeding rate is calculated as ‘pollutant discharges/regulatory standard * 100% − 1’.

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Zhang, L., Ren, S., Chen, X. et al. CEO Hubris and Firm Pollution: State and Market Contingencies in a Transitional Economy. J Bus Ethics 161, 459–478 (2020). https://doi.org/10.1007/s10551-018-3987-y

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