Supervision Or Tunneling:Vertical Interlocks Of Executives And Corporate Environmental Investment

Since the 18 th Party Congress,the government has been vigorously advancing the building of an eco-civilisation,putting forward the concept of "promoting the economy through environmental protection",accelerating the transformation of our economy and realising high-quality construction.Companies are the main source of environmental pollution and should take the initiative to shoulder the responsibility,step up investment and address the environmental issues arising from production at source.In practice,the initiative for environmental decisions is often in the hands of the company’s managers and shareholders,due to different interests,shareholders will be more important to the long-term value of the environmental investment,while managers tend to consider the short-term economic benefits ignore the investment in environmental projects,therefore,the traditional "separation of powers" model may lead to biased investment behavior and affect the overall enthusiasm of Chinese companies to invest in environmental protection.In China,the majority shareholder often consolidates control through vertical interlocks,which build a bridge between the majority shareholder and the business and provide new ideas for adjusting the corporate governance structure,which inevitably affects corporate investment decisions.As to the economic consequences of vertical interlocks of executives,neither academics nor relevant policy authorities have reached a definite conclusion yet:on the one hand,it is believed that the vertical interlocks of executives has a "supervisory effect" and prevents managers from being short-sighted in their decisions,which is profitable for the long-term growth of the corporation.,while on the other hand,it is believed that major shareholders will take advantage of other shareholders’ interests and make corporate decisions less scientific.In response to the relationship between the two main variables,whether major shareholders will play more of a supervisory or hollowing-out role is the central question addressed in this paper.To verify if vertical interlocks of executives have an impact on corporate environmental protection investment,after compiling the relevant literature,this study analyses the impact of vertical interlocks of executives to environmental protection investment from two perspectives,and examines the mechanisms by which the degree of product market competition affects the association among the two variables.After the theory analysis,this study conducted an empirical analysis,the research object was selected from China’s A-share listed companies from 2015-2020,and the corresponding regression figures were built and analysed and tested with Stata15 software.In further analysis,agency costs are introduced to analyze the mechanism of the role of vertical interlocks of executives and corporate environmental protection investment,and the heterogeneity of the role of vertical interlocks of executives is examined by grouping the sample firms by type of part-time executives,nature of ownership and industry category.By theoretical analysis and empirical testing,this paper concludes that vertical interlocks of executives can exert more supervisory effects and promote environmental investment by firms,and that competitive product markets have a positive moderating effect.The study further found that vertical interlocks of executives can increase environmental investment by reducing the agency costs.In addition,the promotion impact of vertical interlocks of executives is more pronounced in the case of vertical interlocks of chairmanship,state-owned and heavily polluting enterprises.The results of this study add to the related literature concerning the vertical interlocks of executives and deliver useful lessons for firms to enhance executive teams and for regulators to clarify policies.