Shared Governance and ESG Rating: Evidence From Korea

Abstract

This paper examines how shared governance structure affects firms' ESG rating using unique co-CEO data in Korea for 2012–2019. We argue that coordination issues, interpersonal conflicts, and mutual monitoring of cosmetic ESG activities under the co-CEO structure would decrease ESG ratings. Consistent with the premise, we find that co-CEO firms disclose lower ESG ratings, especially social scores, than firms led by solo CEOs. However, Korean business group Co-CEOs disclose higher ESG ratings due to reputation concerns, insurance benefits, and responsibility toward society. We further find that the negative association between co-CEO structure and ESG rating is more pronounced in firms with low cash holding and high product market competition. We perform 2SLS estimation, PSM sample analyses, and entropy balancing approach to address possible endogeneity concerns along with self-selection bias problems, and the results reinforce our main findings.