Managerial short-termism and ESG

Chen Lin; Lai Wei; Nan Yang; Yupu Zhang

Managerial short-termism and ESG

Chen Lin, Lai Wei, Nan Yang, Yupu Zhang

Research output: Working paper

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.

Original language	English
Publisher	Social Science Research Network (SSRN)
Publication status	E-pub ahead of print - 6 Jul 2021

Keywords / Materials (for Non-textual outputs)

corporate ESG
CEO short-termism
option vesting
governance
FAS 123-R

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https://ssrn.com/abstract=3872451

Cite this

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title = "Managerial short-termism and ESG",

abstract = "While practitioners call for long-term managerial compensation to promote firms{\textquoteright} commitment in environmental, social and governance (ESG) issues, little direct evidence exists on the role managerial incentive horizon plays in firms{\textquoteright} 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.",

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T1 - Managerial short-termism and ESG

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AU - Wei, Lai

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AU - Zhang, Yupu

PY - 2021/7/6

Y1 - 2021/7/6

N2 - 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.

AB - 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.

KW - corporate ESG

KW - CEO short-termism

KW - option vesting

KW - governance

KW - FAS 123-R

M3 - Working paper

BT - Managerial short-termism and ESG

PB - Social Science Research Network (SSRN)

ER -

Managerial short-termism and ESG

Abstract

Keywords / Materials (for Non-textual outputs)

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