The Impact of CEO Power and Ethical Corporate Citizenship on Firms' Outcomes

This paper examines whether ethical corporate citizenship moderates the effect of CEO power on financial leverage, cost of debt, dividend payout, and firm value. Results show that powerful CEOs who lead WMECs are likely to borrow more money at cheaper cost of debt, and pay higher dividends compared to powerful CEOs who lead non-WMECs. CEO power is not linearly related to Tobin's q measure of firm value. Results do not change if we include corporate governance variables on the dual role of CEO and chairperson, CEO's tenure, and percent of shares owned by the CEO. Our findings provide important policy implications for firms disclosures on ESG activities beyond a mere compliance exercise to an effective monitoring and enforcement process that protects investors in the capital markets, similar to WMECs annually re-certified by Ethisphere.