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The impact of managerial myopia on environmental, social and governance (ESG) engagement: Evidence from Chinese firms

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  • Liu, Hongxun
  • Zhang, Zihan

Abstract

Managers are central to corporate decision-making and face the challenge of balancing short-term market pressures with long-term value creation, including environmental, social, and governance (ESG) issues. However, little is known about the effects of managerial myopia on firms' adoption of long-term oriented ESG strategies. Exploiting variation from differential managerial myopia of Chinese firms over 2008–2019, this study examines the impact of managerial myopia on ESG engagement. The results show that the adoption of ESG engagement is significantly reduced by managerial myopia, with a one standard deviation increase leading to a 7% decrease in the probability of ESG engagement which is potentially large. Our results also show supporting evidence for two promising mechanisms, i.e., public exposure and innovation, through which managerial myopia negatively affects ESG engagement. Furthermore, the study finds that the ESG strategy of firms positively influcences the holdings of investors with longer horizons, providing a financial incentive for firms to engage in ESG issues. These findings can help managers implement long-term strategies that balance short-term market pressures with long-term value creation, including environmental improvement.

Suggested Citation

  • Liu, Hongxun & Zhang, Zihan, 2023. "The impact of managerial myopia on environmental, social and governance (ESG) engagement: Evidence from Chinese firms," Energy Economics, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:eneeco:v:122:y:2023:i:c:s0140988323002037
    DOI: 10.1016/j.eneco.2023.106705
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    Citations

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    Cited by:

    1. Kezhi Yang & Tingting Zhang & Chenyun Ye, 2024. "The Sustainability of Corporate ESG Performance: An Empirical Study," Sustainability, MDPI, vol. 16(6), pages 1-19, March.
    2. Zeng, Yongliang & Zhao, Xiangfang & Zhu, Yiwen, 2023. "Equity incentives and ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PC).
    3. Lu, Zheng & Liang, Yanzi & Hu, Yanglin & Liu, Yang, 2024. "Is managerial myopia detrimental to corporate ESG performance?," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 998-1015.
    4. Ann Susan Thomas & Ambili Jayachandran & Ajithakumari Vijayappan Nair Biju, 2024. "Strategic mapping of the environmental social governance landscape in finance – A bibliometric exploration through concepts and themes," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4428-4453, September.
    5. Cunyi Yang & Conghao Zhu & Khaldoon Albitar, 2024. "ESG ratings and green innovation: A U‐shaped journey towards sustainable development," Business Strategy and the Environment, Wiley Blackwell, vol. 33(5), pages 4108-4129, July.
    6. He, Yu & Zhao, Xiaoling & Zheng, Huan, 2023. "How does the environmental protection tax law affect firm ESG? Evidence from the Chinese stock markets," Energy Economics, Elsevier, vol. 127(PA).
    7. Schoonjans, Eline, 2024. "From diversity to sustainability: Environmental and social spillover effects of board gender quotas," Journal of Economic Behavior & Organization, Elsevier, vol. 222(C), pages 314-331.
    8. Zhang, Yutian & He, Yu, 2024. "How does the green financial system affect environmentally friendly firms' ESG? Evidence from Chinese stock markets," Energy Economics, Elsevier, vol. 130(C).
    9. Anrafel de Souza Barbosa & Maria Cristina Crispim & Luiz Bueno da Silva & Jonhatan Magno Norte da Silva & Aglaucibelly Maciel Barbosa & Sandra Naomi Morioka, 2024. "How can organizations measure the integration of environmental, social, and governance (ESG) criteria? Validation of an instrument using item response theory to capture workers' perception," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3607-3634, May.
    10. Zhang, Yixiang & Liu, Meiling & Fu, Bowen, 2024. "Can digital technology application promote energy saving and emission reduction practices in enterprise? An empirical study based on the awareness-motivation-capability perspective," Energy, Elsevier, vol. 286(C).
    11. Wang, Shuangshi & Yan, Cheng & Zhao, Yuqian, 2024. "Technological peer pressure and corporate sustainability," Energy Economics, Elsevier, vol. 130(C).
    12. Tingting Hu & Kun You & Char-Lee Lok, 2025. "State ownership, political connection and ESG performance," Risk Management, Palgrave Macmillan, vol. 27(1), pages 1-33, January.

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