The Impact Of Compensation Incentive On Carbon Disclosure

With the increasing risk of climate change,the society is gradually aware of the necessity of carbon management and carbon disclosure.However,due to the cost and externalities,efforts to fulfill carbon management and carbon disclosure in enterprises still need to be confirmed.With the trade-off between the benefits and costs of carbon disclosure,a research question arises:Is the carbon disclosure used for managers'personal interests?Is carbon disclosure caused by agency problems or good corporate governance?To explore the ex-ante motivation of carbon disclosure,we study whether the pay-for-performance sensitivity can significantly affect the company's carbon disclosure.The behavior of executives is driven by the compensation mechanism.If executive compensation linked to shareholder returns leads to higher level of carbon disclosure,we can conclude that carbon disclosure can increase shareholder returns,which further indicates that carbon disclosure is caused by good corporate governance.Based on global corporate data from the Carbon Disclosure Project(CDP),we frind that pay-for-performance sensitivity has a significantly positive impact on carbon disclosure propensity as well as carbon information quality.The results suggest that good corporate governance will lead to more carbon disclosure and higher quality of carbon information,indicalting that carbon disclosure is not for managers'private interests.This result is still valid after dealing with the endogeneity issue with instrumental variables and the difference-in-difference.In addition,this essay further explores the regulatory role of legal origins and rule of law in different countries or areas on the relationship between pay-for-performance sensitivity and carbon disclosure,and finds that the positive effect of pay-for-performance sensitivity on carbon disclosures is weaker in countries or areas with common origin and stronger rule of law.The research significance and contribution of this essay are as follows:Firstly,at present,there are few researches on the risk management of climate change from the perspective of corporate governance with international data,so this essay can make a contribution to the literature of corporate governance.Secondly,the existing literature mainly focus on the influencing factors of carbon information disclosure such as companies'operating performance,financial situation and some macro-factors as well as the ex-post results of carbon disclosure.Few has explored corporate carbon disclosure from the perspective of compensation incentives and ex-ante motivation.Therefore,the research can further enrich the literature of carbon information disclosure.Finally,as for the practical significance,the conclusions of this essay can provide suggestions for Chinese companies'carbon management and carbon disclosure practice in the future.