Corporate GHG Emissions and Financial Performances: The Moderating Role of CEO Overconfidence

Das, Bijoy Chandra and Saha, Krishnendu and Sutradhar, Soma Rani (2026) Corporate GHG Emissions and Financial Performances: The Moderating Role of CEO Overconfidence. International Journal of Managerial Finance. ISSN 1743-9132 (In Press)

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Abstract

This study examines whether CEO overconfidence shapes the relationship between corporate greenhouse gas (GHG) emissions and firm financial performance. It asks whether emissions are uniformly value-destroying or whether their financial consequences depend on executive cognition and the operating scale embedded in emissions-intensive activity.
The analysis uses panel data on 1,816 US-listed firms over 2002-2020, with up to 33,179 firm-year observations depending on variable availability. GHG emissions are measured using total emissions, Scope 1, Scope 2, Scope 3, revenue-scaled emissions intensity, and environmental cost indicators. Firm performance is captured by return on equity, return on assets, and Tobin's Q. CEO overconfidence is measured mainly through the Holder67 option-based proxy. The study applies firm and year fixed-effects models, scale-sensitive robustness tests, an alternative overconfidence proxy based on overinvestment, two-stage least squares, and dynamic panel GMM diagnostics.
GHG emissions are positively associated with firm performance when firms are led by overconfident CEOs. This result holds across accounting and market-based measures and remains evident when emissions are separated by scope and when revenue-scaled intensity is examined. The positive association is stronger under high CEO overconfidence and remains visible in scale-adjusted specifications. Environmental cost measures, including air, natural resource, waste, and water costs, also show positive links with performance under overconfident leadership. The dynamic GMM results are treated as diagnostic robustness rather than definitive causal evidence.
The study focuses on US-listed firms and relies on behavioural proxies that may not capture all dimensions of overconfidence. Absolute emissions are also partly correlated with firm scale, although the revised analysis addresses this concern using intensity measures, sector-year fixed effects, additional firm-structure controls, and subsample tests. The evidence therefore supports a conditional association rather than a claim of deliberate emissions-maximising strategy. The paper extends Upper Echelons Theory and contributes to behavioural finance and sustainability research by showing that executive cognition shapes the financial meaning of emissions.
The paper offers a behavioural explanation of the emissions-performance link by showing that CEO overconfidence conditions its financial consequences, while distinguishing overconfidence from related executive attributes such as risk preference, CEO power, narcissism, compensation incentives, and innovation orientation.

Item Type:	Article
Dates:	Date Event 19 October 2026 Accepted
Uncontrolled Keywords:	Greenhouse gas (GHG), Emission Intensity, Overconfidence, ROE, Tobin’s Q, ROA
Subjects:	CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics CAH17 - business and management > CAH17-01 - business and management > CAH17-01-07 - finance
Divisions:	Business School > Accountancy, Finance and Economics
Depositing User:	Gemma Tonks
Date Deposited:	22 Oct 2026 16:49
Last Modified:	22 Oct 2026 16:49
URI:	https://www.open-access.bcu.ac.uk/id/eprint/17280

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