CEO Political Connections and Adverse Environmental Outcomes: The Moderating Role of the Control–Ownership Wedge

ABSTRACT This study examines the relationship between CEO political connections and firms' adverse environmental outcomes and how this relationship varies with the control‐ownership wedge of the ultimate controller. It employs correlated random‐effects Poisson models with the Mundlak adjustment to analyze panel data on Chinese listed non‐state‐owned enterprises from 2010 to 2019. Adverse environmental outcomes are measured by firms' inclusion in the national Directory of Key Environmental Monitoring Entities over a 3‐year forward‐looking window. CEO political connections are measured by the CEO's membership in the Communist Party and key political bodies. The results show that CEO political connections are positively associated with adverse environmental outcomes when the wedge is zero or small, and that this association weakens as the wedge increases. By integrating executive‐level political embeddedness with ultimate‐controller governance structures, this study identifies the control–ownership wedge as a boundary condition on the relationship between CEO political connections and firms' adverse environmental outcomes in emerging markets characterized by evolving regulation and enforcement and by the separation between control and ownership rights.