Controlled Firms, Preferences, and Environmental Sustainability

Controlled firms constitute a significant percentage of the world’s publicly traded firms, are insulated from outside investors’ pressure, and can choose to be cleaner than widely held firms if they wish. We test whether control is related to carbon emissions in a sample of 3,769 firms from 35 countries. We use large language models with retrieval-augmented generation to construct a novel measure of owners’ environmental preferences for family-controlled firms, the most frequent type of controlled firm globally. We find that preferences for clean matter, but not always in ways that one might expect. Families with clean preferences perform no better than widely held firms while those without emit about 20% more carbon than widely held firms. Thus, non-pecuniary preferences for clean apparently do not overcome the pecuniary private benefit drift towards dirty that affects all controlled firms.