If some companies are able to focus less on short-term financial performance, does that mean they can perform better on environmental measures? This is the question two Daniels professors—and one former Daniels professor—wanted to answer.
Paul Seaborn, assistant professor of management, teamed up with Tricia Olsen, assistant professor of business ethics and legal studies, and Jason Howell, a former assistant professor of finance at Daniels, to co-author the paper, “Is Insider Control Good for Environmental Performance? Evidence From Dual-Class Firms,” which was recently published in the journal, Business & Society.
“This was an interesting project for us [as researchers] because we are all from different disciplines,” said Seaborn. “What we ended up working on was something that overlapped with all of our research interests, which is kind of unusual.”
In their paper, Seaborn, Olsen and Howell use a data set of dual-class firms, where insiders (including corporate officers and directors) have voting rights disproportionate to their equity rights. The additional voting rights shield insiders from some of the typical stock market pressures.
“We looked at this very unique type of organization—dual-class firms—to see whether, despite the criticism that they sometimes receive for their financial performance, there might be a silver lining in terms of their environmental performance,” said Seaborn.
What they found was unexpected and perhaps a bit disheartening. “[The dual class firms] also seemed to underachieve in terms of environmental performance relative to traditional single-class firms,” said Seaborn. “So, that was an interesting discovery for us because there was some hope that firms that aren’t as focused on short-term financial results might get a boost on other non-financial outcomes.”
Previous research on the financial performance of dual-class firms found that both voting rights and equity rights have a significant impact. Yet, in this study, the level of insiders’ equity stake on its own did not significantly affect environmental performance.
The researchers note, “Practically, our findings also cast doubt on the idea that providing real-world insiders with significant voting control, using a dual-class structure or other mechanisms, will aid environmental performance.”