Managerial Short-Termism and ESG
Posted: 6 Jul 2021
Date Written: June 23, 2021
While practitioners call for long-term managerial compensation to promote firms’ commitment in environmental, social and governance (ESG) issues, little direct evidence exists on the role managerial incentive horizon plays in firms’ ESG performance. Exploiting two alternative identification strategies, we find consistent evidence that firm ESG performance declines when CEO short-term incentive becomes stronger. We find similar results using other ESG measures including worker injuries and pollution. Together, the evidence suggests that CEO compensation that promotes long-termism is critical for ESG.
Keywords: Corporate ESG, CEO Short-Termism, Option Vesting, Governance, FAS 123-R
JEL Classification: G32, G34, M12, M14
Suggested Citation: Suggested Citation