The effect of CEO turnover on ESG disclosure : a study of listed US firms’ ESG disclosure in the management’s discussion and analysis section of 10-K filings and CEO turnover in the period 2011-2019

Abstract

This paper examines the relationship between chief executive officer (CEO) turnovers and environmental, social and governance (ESG) disclosure. We find that firms led by newly appointed CEOs improve our measure of ESG disclosure by 2.84% during the two years following the replacement of the CEO. Our results also show a significant increase in the prioritisation of ESG topics during this period. We measure firms’ written ESG disclosure in the Management’s Discussion and Analysis (MD&A) section of their 10-K filings by employing textual analysis and an ESG dictionary. We document that the relationship is likely to be causal by utilising propensity score matching in an event study framework around CEO turnovers. The results suggest that CEO turnover is a mechanism for breaking patterns of recycling corporate statements, leading to improved ESG disclosure practices.