CEO Hometown Favoritism in Corporate Environmental Policies

Abstract

Exploiting within-firm variations in plant-level toxic releases, we document the effect of managerial hometown attachment on corporate environmental policies. Pollution intensity is 20% lower for plants near CEOs' hometowns, achieved by conducting more costly waste management activities such as source reduction, recycling, and energy recovery. Analyses using CEO turnover events provide causal inference. Hometown emission reduction is stronger for poorly-governed firms, and is significantly weakened following the exogenous reduction in agency conflicts driven by the 2003 Tax Reform Act. In addition, hometown emission reduction is most salient in firms with worse CSR performance or tighten financial constraints. Our findings reveal that CEOs' personal motives affect corporate pollution abatement, which is manifested as a form of agency problem.