Sustainability and Founder-CEO Firms: Evidence from Corporate Social Responsibility Engagement, Credit Dynamics and Accounting Conservatism

The leadership of founder-chief executive officers (CEOs), particularly in founder-led firms, is crucial in influencing sustainability, which results in better firm performance. The study examines the sustainability of founder-CEO-led firms. It also investigates the financial reporting styles and credit dynamics of these firms. The results show that firms led by founder-CEOs tend to be more sustainable than those managed by professional CEOs. Furthermore, we find that founder-led firms that are more sustainable tend to yield better firm performance. The study relies on the Basu (1997 , Journal of Accounting and Economics , 24, 1, 3–37) model and the C-score approach of Khan and Watts (2009 , Journal of Accounting and Economics , 48, 2–3, 132–150) to quantify accounting conservatism. We find that founder-led firms use aggressive financial reporting and lower accounting conservatism to boost reported earnings, which directly affects the statutory requirement for corporate social responsibility. The study also shows that firms led by founders secure higher debt financing at lower interest rates. This provides a clear linkage between founder-CEO leadership, lower accounting conservatism and higher sustainability engagement. Our study also addresses the endogeneity concern using the entropy-balancing matched-sample approach.