ABSTRACT We examine the association between CEOs’ unrealized long‐term capital gains tax liabilities (tax burdens) and corporate environmental performance. Prior research suggests that managers facing higher tax burdens are less likely to sell stock and therefore become more exposed to firm‐specific risk. This greater undiversified exposure reduces their willingness to undertake risky corporate actions and increases their focus on long‐term firm stability. We therefore hypothesize that higher tax burdens make CEOs more attentive to corporate environmental misconduct. We find that toxic waste generation declines as CEOs’ tax burdens increase. This negative association is stronger among firms with weaker internal governance, less stringent environmental regulatory scrutiny, and CEOs facing stronger career‐related pressure to prioritize near‐term results or having fewer opportunities to diversify risk. Channel tests suggest that higher CEO tax burdens reduce toxic waste generation by improving corporate productive efficiency and increasing green innovation. Overall, our findings highlight the importance of CEOs’ personal tax burdens in shaping corporate environmental policy.
Xu et al. (Fri,) studied this question.