Date of Award
Spring 2023
Degree Name
Bachelor of Science (BS)
Advisor(s)
Emma Peng
Abstract
This paper investigates how a firm’s political landscape affects the integration of ESG measures in executive compensation contracts, thereby affecting the firm’s ESG performance and credit rating agencies’ valuation of the firm’s default risk. Based on U.S. state senatorial election results, I categorize a state as either predominantly Democratic (blue) or Republican (red). Then I use a firm’s headquarters to define whether a firm is blue, or red. Based on a sample of firm-year observations in the period 2014-2021, the results show that a firm in a blue state is more likely to link executive compensation to ESG performance measures. Further, I find that these firms in blue states with ESG-linked compensation contracts have better ESG performance. Lastly, there is little evidence that a blue firm’s ESG performance has a positive impact on its credit rating, even if the firm has linked ESG performance to executive compensation.
Recommended Citation
Smith III, William, "Politics, Integration of ESG in CEO Compensation, and Firm Credit Ratings" (2023). Gabelli School of Business Honors Thesis Collection. 2.
https://research.library.fordham.edu/gabelli_thesis/2
