Earnings Quality, Emissions, and Executive Compensation in European Firms With Say-on-Pay Voting Adoption

Abstract

This study investigates the interplay between carbon emissions (COEM), earnings quality (EQ), and CEOs’ pay within non-financial European firms. The study's results indicate a strong adverse correlation between COEM and EQ. Importantly, the influence of executive compensation on this correlation is adverse, particularly within firms that have adopted Say-on-Pay (SOP) system. The Paris Agreement (PA) serves as a driver for sustainability, influencing the dynamics of EQ. This research offers original perspectives on the link between COEM and EQ, along with the moderating impact of executive compensation. Additionally, it sheds light on the potential effects of SOP regulations and global sustainability initiatives on a company's environmentally responsible practices and the quality of accounting numbers.