Climate change, managerial ownership, and agency conflicts: insights from the Paris Agreement

Guided by agency theory, we examine how managerial ownership affects shareholder value around the Paris Agreement's adoption. Our findings suggest that higher managerial ownership reduces shareholder wealth in firms highly exposed to climate change, indicating agency conflicts. Managers with large ownership stakes may prioritize personal interests over climate responsibility, harming shareholder value. The key driver of this effect is new business opportunities related to climate change, which typically enhance shareholder value but are overlooked when managers hold significant stakes. This highlights an ethical dilemma where managers may forgo sustainable opportunities for personal gain. However, managerial ownership does not influence decisions related to physical and regulatory climate risks, likely because these risks are immediate and unavoidable.