Moral self-licensing theory posits that individuals who build a positive moral self-image through past good deeds may feel justified in acting less ethically afterward. This theory has been well-documented among individuals through experimental studies, but its application to complex organizations remains underexplored. This study examines the theory in corporate finance context, using CEO reputation- proxied by prestigious awards- as moral credit and firm pollution as a measure of ethical conduct. We find that firms led by award winning CEOs have significantly higher pollution of around 14 percent following the award. The effect is amplified when CEOs hold greater equity-based pay, suggesting a financial motive, as our data show that higher pollution is linked to stronger financial firm performance. These findings highlight how reputational capital can foster moral self-licensing, showing that CEO moral credit may weaken corporate sustainability.
