Management Accounting Section Midyear Meeting

Spread the ESG Wealth: An Examination of the Role of Shared Directors in the Diffusion of ESG Reporting Practices

• In Event: Beyond Profits (Archival)

Abstract

Given the lack of standardization of the Environmental, Social, and Governance (ESG) reporting environment in the U.S., companies seeking to learn best practices may rely on a trusted source. One such trusted source is directors whose experiences on other companies’ boards enriches their value to an interlocked company. Relying on social learning theory, this study examines the dissemination of ESG reporting quality practices between firms via shared directors and observes that the effect of dissemination is strongest for firms interlocked with high-quality ESG disclosing firms. We interpret this as evidence that shared directors serve as conduits for the spread of positive practices across firms. Furthermore, our results reveal that when the shared director links strategically related firms, the directional relationship of the interlock’s effect on ESG reporting practices is altered. Examining a sample of 3,065 interlocks in 2017 identified using BoardEx, we test for a positive association using an OLS regression examining the effect of an interlock firm’s ESG disclosure quality score on the focal firm’s ESG disclosure quality score. Additionally, we examine the moderating role of strategic relatedness (shared industry) on the relationship between the interlock firm’s ESG disclosure quality and the focal firm’s ESG disclosure quality.

Authors

• Jacqueline J. Wukich, Case Western Reserve University

• Erica Neuman, Case Western Reserve University