CEO Characteristics and Environmental Performance: Evidence from Indonesian Banks
Following the paradigm shift of company performance, from merely financial aspects to the balance between economics and environmental aspects, a study that explores the drivers of company environmental performance is indispensable. This study aims to empirically examine the role of CEO characteristics in determining the environmental performance from CEO's gender, age, expertise, and international experience in Indonesian banks. We use secondary data from banks' annual and sustainability reports that were analysed using panel data regression. The results demonstrate that CEO's international experience and education level positively affect bank's environmental performance while foreign CEO and CEO's abroad study exhibit negative effect. Our findings emphasise that CEO plays a great role in initiating banks' environmental activities. CEO's decision is crucial to adopt environmental practice that leads to better environmental performance. The study contributes to the Indonesian literature by providing empirical evidence of CEO factors in determining banks' environmental performance, in which there are very limited studies examining the role of CEO. We also suggest the Indonesian Financial Service Authority to encourage banks to deliver higher environmental contribution by maximizing the role of CEO.
Amidjaya, P. G., & Widagdo, A. K. (2019). Sustainability reporting in Indonesian listed banks: Do corporate governance, ownership structure and digital banking matter?, Journal of Applied Accounting Research, 21(2), 231-247. https://doi.org/10.1108/JAAR-09-2018-0149
Amore, M. D., Bennedsen, M., Larsen, B., & Rosenbaum, P. (2019). CEO education and corporate environmental footprint. Journal of Environmental Economics and Management, 94, 254-273. https://doi.org/10.1016/j.jeem.2019.02.001
Athanassiou, N., & Nigh, D. (2000). Internationalization, tacit knowledge and the top management teams of MNCs. Journal of International Business Studies, 31(3), 471-487. https://doi.org/10.1057/palgrave.jibs.8490917
Azam, A., Boari, C., & Bertolotti, F. (2018). Top management team international experience and strategic decision-making. Multinational Business Review, 26(1), 50-70. https://doi.org/10.1108/MBR-07-2017-0044
Boiral, O., & Henri, J. F. (2017). Is sustainability performance comparable? A study of GRI reports of mining organizations. Business & Society, 56(2), 283-317. https://doi.org/10.1177/0007650315576134
Carpenter, M. A., Geletkancz, M. A., & Sanders, W. G. (2004). Upper echelons research revisited: Antecedents, elements and consequences of top management team composition. Journal of Management, 30(6), 749-778. https://doi.org/10.1016/j.jm.2004.06.001
Carpenter, M. A., Sanders, W. G., & Gregersen, H. B. (2001). Bundling human capital with organizational context: The impact of international assignment experience on multinational firm performance and CEO pay. Academy of Management Journal, 44(3), 493-511. https://doi.org/10.5465/3069366
Carr, J. B., & Brower, R. S. (2000). Principled opportunism: Evidence from the organizational middle. Public Administration Quarterly, 24(1), 109-138.
Christmann, P., & G. Taylor. (2001). Globalization and the environment: Determinants of firm self-regulation in China. Journal of International Business Studies, 32, 439-458. https://doi.org/10.1057/palgrave.jibs.8490976
David, K., Paul, M., Ongeti, W., Nicholas, L., & Evans, A. (2012). Upper echelons theory and research: A review of theory and empirical literature 28 years later. Prime Journals of Business Administration and Management, 2(10), 697-703.
Davis, J. H. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47. https://doi.org/10.2307/259223
De Young, R. (1996). Some psychological aspects of reduced consumption behavior: The role of intrinsic satisfaction and competence motivation. Environment & Behavior, 28(1), 358-409. https://doi.org/10.1177/0013916596283005
Dienes, D., Sassen, R., & Fischer, J. (2016), What are the drivers of sustainability reporting? A systematic review. Sustainability Accounting, Management and Policy Journal, 7(2), 154-189. https://doi.org/10.1108/SAMPJ-08-2014-0050
Dilling, P. F. (2010). Sustainability reporting in a global context: What are the characteristics of corporations that provide high quality sustainability reports an empirical analysis. International Business & Economics Research Journal (IBER), 9(1), 19-30. https://doi.org/10.19030/iber.v9i1.505
Djajadikerta, H. G., & Trireksani, T. (2012). Corporate social and environmental disclosure by Indonesian listed companies on their corporate web sites. Journal of Applied Accounting Research, 13(1), 21-36. https://doi.org/10.1108/09675421211231899
Du, S., & Vieira, E. T. (2012). Striving for legitimacy through corporate social responsibility: Insights from oil companies. Journal of Business Ethics, 110(4), 413-427. https://doi.org/10.1007/s10551-012-1490-4
Elkington, J. (1997). Cannibals with forks, the triple bottom line of twentieth century business. UK: Capstone.
Ewert, A., & Baker, D. (2001). Standing for where you sit: An exploratory analysis of the relationship between academic major and environment beliefs. Environment and Behavior, 33(1), 687-707. https://doi.org/10.1177/00139160121973197
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288-307. https://doi.org/10.1086/260866
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325. https://doi.org/10.1086/467037
Fatemi, A. M. & Iraj, F. J. (2013). Sustainable finance: A new paradigm. Global Finance Journal, 24(2), 101-113. https://doi.org/10.1016/j.gfj.2013.07.006
Feng, H. C., & Ru, L. B. (2019). Analysis of sustainable development path for green finance: A case study of China. In Green Finance for Sustainable Global Growth (pp. 62-83). Pennsylvania: IGI Global. https://doi.org/10.4018/978-1-5225-7808-6.ch003
Fernando, P. M. P., & Fernando, K. S. D. (2017). Study of green banking practices in the Sri Lankan context: a critical review. In Selected Papers from the Asia-Pacific Conference on Economics & Finance (APEF 2016) (pp. 125-143). Singapore: Springer. https://doi.org/10.1007/978-981-10-3566-1_10
Friedman, M. (2007). The Social Responsibility of Business Is to Increase Its Profits. Corporate Ethics and Corporate Governance, Berlin: Springer.
Glass, C., Cook, A., & Ingersoll, A. R. (2015). Do women leaders promote sustainability? Analyzing the effect of corporate governance composition on environmental performance. Business Strategy and the Environment, 25(7), 495-511. https://doi.org/10.1002/bse.1879
Gong, Y. (2006). The impact of subsidiary top management team national diversity on subsidiary performance: Knowledge and legitimacy perspectives. Management International Review, 46(6), 771-790. https://doi.org/10.1007/s11575-006-0126-2
Gregersen, H. B., Morrison, A., & Black, S. (1998). Developing leaders for the global frontier. Sloan Management Review, 40(1), 21-32.
Gunawan, J. (2015). Corporate social disclosures in Indonesia: Stakeholders' influence and motivation. Social Responsibility Journal, 11(3), 535-552. https://doi.org/10.1108/SRJ-04-2014-0048
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of management review, 9(2), 193-206. https://doi.org/10.2307/258434
Harjoto, M. A., Laksmana, I., & Yang, Y. W. (2019). Board nationality and educational background diversity and corporate social performance. Corporate Governance, 19(2), 217-239. https://doi.org/10.1108/CG-04-2018-0138
Huang, Q., Chen, X., Zhou, M., Zhang, X., & Duan, L. (2019). How does CEO's environmental awareness affect technological innovation? International Journal of Environmental Research and Public Health, 16(2), 1-16. https://doi.org/10.3390/ijerph16020261
Huang, S. K. (2012). The impact of CEO characteristics on corporate sustainable development. Corporate Social Responsibility and Environmental Management, 20(4), 234-244. https://doi.org/10.1002/csr.1295
Jensen, M. C., & Meckling, W. H. (1976). Theory of The Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
Kang, J. (2016). Labor market evaluation versus legacy conservation: What factors determine retiring CEOs' decisions about long‐term investment?. Strategic Management Journal, 37(2), 389-405. https://doi.org/10.1002/smj.2234
Kang, Y. S., Huh, E., & Lim, M. H. (2019). Effects of foreign directors' nationalities and director types on corporate philanthropic behavior: Evidence from Korean firms. Sustainability, 11(11), 3132. https://doi.org/10.3390/su11113132
Khan, I., Khan, I., & Senturk, I. (2019). Board diversity and quality of CSR disclosure: evidence from Pakistan. Corporate Governance: The International Journal of Business in Society, 19(6), 1187-1203. https://doi.org/10.1108/CG-12-2018-0371
Kim, B., Lee, S., & Kang, K. H. (2018). The moderating role of CEO narcissism on the relationship between uncertainty avoidance and CSR. Tourism Management, 67, 203-213. https://doi.org/10.1016/j.tourman.2018.01.018
Le, S., & Kroll, M. (2017). CEO international experience: Effects on strategic change and firm performance. Journal of International Business Studies, 48(5), 573-595. https://doi.org/10.1057/s41267-017-0080-1
Lewis, B. W., Walls, J. L., & Dowell, G. W. S. (2014). Difference in degrees: CEO characteristics and firm environmental disclosure. Strategic Management Journal, 35(5), 712-722. https://doi.org/10.1002/smj.2127
Manner, M. H. (2010). The impact of CEO characteristics on corporate social performance. Journal of business ethics, 93(1), 53-72. https://doi.org/10.1007/s10551-010-0626-7
Mantysaari, P. (2010). The law of corporate finance: General principles and EU law, Volume I: Cash flow, risk, agency, information. Berlin: Springer. https://doi.org/10.1007/978-3-642-03058-1
McCarthy, S., Oliver, B., & Song, S. (2017). Corporate social responsibility and CEO confidence. Journal of Banking & Finance, 75, 280-291. https://doi.org/10.1016/j.jbankfin.2016.11.024
Meyer, A. (2015). Does education increase pro-environmental behavior? Evidence from Europe. Ecological Economics, 116, 108-121. https://doi.org/10.1016/j.ecolecon.2015.04.018
Nelson, J. (2005). Corporate governance practices, CEO characteristics and firm performance. Journal of Corporate Finance, 11(1-2), 197-228. https://doi.org/10.1016/j.jcorpfin.2003.07.001
Peterson, S. J., Galvin, B. M., & Lange, D. (2012). CEO servant leadership: Exploring executive characteristics and firm performance. Personnel Psychology, 65(3), 565-596. https://doi.org/10.1111/j.1744-6570.2012.01253.x
Prabowo, M. A., Jamin, M., Saputro, D. J., Mufraini, A., & Agustia, D. (2017). Female executive officers and corporate social responsibility disclosure: evidence from the banking industry in an emerging market. Journal for Global Business Advancement, 10(6), 631-651. https://doi.org/10.1504/JGBA.2017.091944
Rao, K., & Tilt, C. (2016). Board composition and corporate social responsibility: The role of diversity, gender, strategy and decision making. Journal of Business Ethics, 138(2), 327-347. https://doi.org/10.1007/s10551-015-2613-5
Richter, U. H., & Arndt, F. F. (2018). Cognitive processes in the CSR decision-making process: a sensemaking perspective. Journal of Business Ethics, 148(3), 587-602. https://doi.org/10.1007/s10551-015-3011-8
Rivera, J., & De Leon, P. (2005). Chief executive officers and voluntary environmental performance: Costa Rica's certification for sustainable tourism. Policy Science, 38, 107-127. https://doi.org/10.1007/s11077-005-6590-x
Sarhan, A. A., Ntim, C. G., & Al-Najjar, B. (2019). Board diversity, corporate governance, corporate performance, and executive pay. International Journal of Finance and Economics, 24, 761-786. https://doi.org/10.1002/ijfe.1690
Sarumpaet, S., Nelwan, M. L., & Dewi, D. N. (2017). The value relevance of environmental performance: Evidence from Indonesia. Social Responsibility Journal, 13(4), 817-827. https://doi.org/10.1108/SRJ-01-2017-0003
Scholtens, B. (2017). Why finance should care about ecology. Trends in Ecology & Evolution, 32(7), 500-505. https://doi.org/10.1016/j.tree.2017.03.013
Scott, W. (2012). Financial accounting theory international. New Jersey: Prentice Hall Inc.
Shahab, Y., Ntim, C., Yugang, C., Ullah, F., Li, H. X., & Ye, Z. (2019). CEO attributes, sustainable performance, environmental performance, and environmental reporting: New insights from upper echelons perspective. Business Strategy and the Environment. 29(1), 1-16. https://doi.org/10.1002/bse.2345
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461-488. https://doi.org/10.1086/261385
Siregar, S. V., & Bachtiar, Y. (2010). Corporate social reporting: empirical evidence from Indonesia Stock Exchange. International Journal of Islamic and Middle Eastern Finance and Management, 3(3), 241-252. https://doi.org/10.1108/17538391011072435
Smith, K. (1995). Does education induce people to improve the environment?. Journal of Public Policy Analysis and Management, 14(4), 599-604. https://doi.org/10.2307/3324912
Sparkes, R. (2002). Socially Responsibility Investment, a Global Revolution. UK: John Wiley & Sons Ltd.
Stern, P. C., Kalof, L., Dietz, T., & Guagnano, G. A. (1995). Values, beliefs, and pro-environmental action: Attitude formation toward emergent attitude objects. Journal of Applied Social Psychology, 25, 1611-1636. https://doi.org/10.1111/j.1559-1816.1995.tb02636.x
Sundarasen, S. D. D., Je-Yen, T., & Rajangam, N. (2016) Board composition and corporate social responsibility in an emerging market, Corporate Governance, 16(1), 35-53. https://doi.org/10.1108/CG-05-2015-0059
Suutari, V., & Mäkelä, K. (2007). The career capital of managers with global careers. Journal of Managerial Psychology, 22(7), 628-648. https://doi.org/10.1108/02683940710820073
Tang, Y., Mack, D. Z., & Chen, G. (2018). The differential effects of CEO narcissism and hubris on corporate social responsibility. Strategic Management Journal, 39(5), 1370-1387. https://doi.org/10.1002/smj.2761
Tara, K., Singh, S., & Kumar, R. (2015). Green banking for environmental management: a paradigm shift. Current World Environment, 10(3), 1029-1038. https://doi.org/10.12944/CWE.10.3.36
Thomas, T. (2005). Are business students buying it? A theoretical framework for measuring attitudes toward the legitimacy of environmental sustainability. Business Strategy and the Environment, 14(3), 186-197. https://doi.org/10.1002/bse.446
Valente, A., & Atkinson, D. (2019). Sustainability in business: A millennials' perspective. Journal of Modern Accounting and Auditing, 15(6), 293-304. https://doi.org/10.17265/1548-6583/2019.06.002
Volz, U. (2018). Fostering green finance for sustainable development in Asia. ADBI Working Paper No. 814. Tokyo: Asian Development Bank Institute (ADBI). https://doi.org/10.2139/ssrn.3198680
Walls, J. L., & Berrone, P. (2017). The power of one to make a difference: How informal and formal CEO power affect environmental sustainability. Journal of Business Ethics, 145(2), 293-308. https://doi.org/10.1007/s10551-015-2902-z
Zhou, M. M., & Panbunyuen, P. (2008). The Association Between Board Composition and Different Types of Voluntary Disclosure. A Quantitative study of Chinese and Swedish Listed Companies, 16(3), 555-583. https://doi.org/10.1080/09638180701507155
Zuraik, A., & Kelly, L. (2019). The role of CEO transformational leadership and innovation climate in exploration and exploitation. European Journal of Innovation Management, 22(1), 84-104. https://doi.org/10.1108/EJIM-10-2017-0142
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.