Directors' Personal Experience and Corporate Environmental Performance

In this paper, we examine how corporate policy makers’ personal experience of extreme weather events affects corporate environmental performance. We find that after a firm’s directors experience natural disaster shocks at an interlocking firm, the focal firm improves its environmental performance in the following years. The impact is stronger when directors’ attitude towards environmental issues is more likely to be affected and when it is easier for affected directors to promote environmentally friendly policies. The results are not driven by changes in directors’ risk preference, but rather more likely by changes in their climate change beliefs. Further analysis suggests that firms advance their environmental performance not for climate risk management purpose. We find similar results when using disaster shocks at directors’ area of residence. Overall, this paper shows that personal experience of extreme weather events affects directors’ beliefs in climate change risk and consequently corporate sustainability policy.