ESG disclosures and firm risk-taking - the moderating role of female CEOs and CEO power

Purpose The purpose of this paper is to examine the effect of the role of environmental, social, and governance (ESG) disclosures on firms' risk-taking. The paper further investigates whether female chief executive officers (CEOs) and various dimensions of CEO power could explain the ESG risk-taking relationship. Design/methodology/approach Using a sample of Fortune 500 firms from 2003 to 2020, this study has applied fixed effect, instrumental variables-two-stage least squares and system generalised method of moments estimation to examine the impact of ESG disclosure on firm risk-taking. This study has used two measures of firm risk – systematic risk and performance hazard risk. Findings First, our results show that firms' ESG disclosures positively affect risk-taking for all four pillars of ESG – combined score, environmental score, social score and governance score. These results are consistent across both accounting and market-based measures. Second, we find that this risk-taking incentive weakens in the presence of female CEOs and CEO informal power. Third, the results suggest that the positive relationship between ESG disclosures and risk-taking is more pronounced in the presence of CEO formal power. Originality/value These results indicate that CEO power could act as a double-edged sword in determining the relationship between ESG disclosures and firm risk-taking. We control for endogeneity concerns, and the results are robust when alternative measures are used for risk and ESG.