Managerial Short-Termism and ESG

Posted: 6 Jul 2021

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Lai Wei

Lingnan University - Department of Finance and Insurance

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance

Yupu Zhang

The University of Hong Kong - Faculty of Business and Economics

Date Written: June 23, 2021

Abstract

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

Lin, Chen and Wei, Lai and Yang, Nan and Zhang, Yupu, Managerial Short-Termism and ESG (June 23, 2021). Available at SSRN: https://ssrn.com/abstract=3872451

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Lai Wei (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Yupu Zhang

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

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