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

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.