Management Accounting Section Midyear Meeting

The Conflict Between Chief Executive Officer Power and Different Measures of Environmental Disclosure

• In Event: Chief Executive Officers (Archival)

Abstract

This study investigates if the detriment to environmental (E) disclosures as a result of chief executive officer’s (CEO) power is different for outcome versus intention oriented disclosure characteristics. This is a particularly relevant relationship given shifts in corporate priorities as demonstrated by the proliferation of impact investing, the growth in E reporting, and the CEO’s stated commitment to maximizing stakeholder wealth that was discussed at the August 2019 Business Roundtable.
Drawing on agency theory, this study provides evidence that CEO power suppresses the characteristics of E disclosure that provide the most comparable measure of outcomes, as desired by investors. The research captures the diverse nature of E disclosures by distinguishing four characteristics, (a) qualitative, (b) quantitative, (c) effectiveness, and (d) effort. This study is the first to identify the outcome-based characteristic of effectiveness (comparable and numeric) and contends it aligns with investor preferences more than other types like quantitative (numeric) and provides the most accountability.
Building on prior research that suggests CEO power is a detriment to E disclosure, this study demonstrates that the conflict between CEO power and E disclosures varies by the extent of accountability provided by the disclosures. Applying seemingly unrelated regressions to a sample of over 2,200 U.S. publicly traded companies, this research shows that powerful CEOs suppression of the most comparable outcome-based environmental disclosures (effectiveness) is greater than the suppression of other environmental disclosures. The granular distinction of disclosures based on their communication of intention versus outcome and comparability provides a more nuanced depiction of the conflict between powerful CEOs and E reporting.

Author

• Jacqueline J. Wukich, Case Western Reserve University