Do Directors Drive Corporate Sustainability?

Abstract

We use exogenous variation in the exposure of U.S. firms’ directors to the staggered introduction of environmental and social (E&S) reforms in foreign countries to study the role of the Board of Directors in shaping U.S. firms’ E&S performance. Using a difference-in-differences design, we document a strong impact of the Board of Directors on U.S. firms’ overall E&S performance, and we find that this effect is concentrated in firms’ environmental commitments. The shock transmission is stronger in ‘clean’ industries and firms with lower financial risk and less institutional ownership. Firms exposed to E&S shocks have greater subsequent firm performance and productivity.