Executive Overconfidence and Corporate Environmental, Social, and Governance Performance

Yao Wang, Yinyin Han, Qiuxuan Du () and Deshuai Hou
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Yao Wang: School of Economics and Management, China University of Petroleum (Beijing), No. 18 Fuxue Road, Changping District, Beijing 102249, China
Yinyin Han: School of Economics and Management, China University of Petroleum (Beijing), No. 18 Fuxue Road, Changping District, Beijing 102249, China
Qiuxuan Du: PBC School of Finance, Tsinghua University, No. 1 Huangmuzhuang Road, Shuangjing, Chaoyang District, Beijing 100084, China
Deshuai Hou: School of Accounting, Capital University of Economics and Business, No. 121 Zhangjia Road, Huaxiang, Fengtai District, Beijing 100089, China

Sustainability, 2023, vol. 15, issue 21, 1-22

Abstract: ESG (environmental, social, and governance) has gained widespread recognition as a fundamental investment approach on a global scale. Demonstrating strong ESG performance has evolved into a vital strategic imperative for fostering sustainable corporate growth and bolstering competitiveness. Given their critical roles within companies, it is crucial for decision-makers to investigate the impact of executive overconfidence on ESG performance. Through an examination of Chinese A-share listed companies spanning the years 2009 to 2020, this research reveals a significant correlation between executive overconfidence and improved corporate ESG performance. Mechanism tests uncover that overconfident executives exhibit robust risk-taking abilities and a heightened drive to garner attention, both of which contribute to the enhancement of ESG performance. Heterogeneity analysis demonstrates that, in companies characterized by lower-quality accounting information, lower institutional shareholding ratios, ample cash flow, and increased government subsidies, the positive influence of executive overconfidence on ESG performance is even more pronounced. Furthermore, our investigation unveils that overconfident executives exert a positive impact on corporate ESG performance through three primary pathways: assuming responsibility for environmental protection (E), embracing social responsibility (S), and fortifying corporate governance (G). It is worth noting that this boost in ESG performance, in turn, translates into an enhancement of corporate value. Ultimately, this research contributes to a deeper understanding of the economic ramifications of executive overconfidence and enriches the body of knowledge pertaining to the mechanisms for enhancing ESG performance.

Keywords: ESG performance; executive overconfidence; risk-taking; media attention; corporate value; over-optimism; corporate governance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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