Environmental, social, and governance performance analysis of financially constrained firms: Does executives' managerial ability make a difference?

Abstract

AbstractManagers at all levels have been making efforts to improve environmental, social, and governance (ESG) performance in response to mounting pressure from stakeholders. This research examines the relationship between the managers capabilities and their ability to achieve high ESG performance, particularly in challenging and restricting financial environments. This research also uncovers the process through which competent managers reduce the financial restrictions of businesses. Panel regressions are estimated on a dataset of 6294 firm years of Chinese listed companies from 2010 to 2019. Our study findings demonstrate that chief executive officers (CEOs) with strong management skills exhibit a positive correlation with their company's ESG performance and its subcomponents. Moreover, financial constraints exert a negative moderating effect on the relationship between CEO management competence and ESG performance. Specifically, competent CEOs of financially constrained organizations prioritize ESG performance more significantly than their counterparts in companies without financial limitations. The findings are robust to various estimating methods.