Does overconfident CEO lead to corporate environmental misconducts? Evidence from China

by Lu Zhang, Dayuan Li, Zhaohua Xiao, Jialin Jiang, Fenghua Lu

Enterprises are drawing growing criticism for violating environmental rules. The research examines whether and how top executives’ mental bias leads to corporate environmental misconduct (CEI). Drawing on upper echelon theory (UET) and agency theory, we link CEO overconfidence with CEI, and explore the boundary conditions from the perspective of management discretion at the governance level. Using a data set covering the Chinese listed enterprises from 2004 to 2016, the empirical results demonstrate that CEO overconfidence positively and markedly influenced CEI. Moreover, shareholder concentration and CEO duality reinforce the relationship between overconfidence and CEI, whereas board independence is the opposite. The findings clarify ecological outcomes of CEO overconfidence and have remarkable significance in theory and practice.