Articlegold2023

Executive Overconfidence and Corporate Environmental, Social, and Governance Performance

28 citations0/0 files storedSustainability

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Corporate Social Responsibility Reporting Corporate Finance and Governance Corporate Governance and Financial Management

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.

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References

1988Illusion and well-being: A social psychological perspective on mental health.2008Who makes acquisitions? CEO overconfidence and the market's reaction☆2018Do institutional investors drive corporate social responsibility? International evidence 2011Does the stock market fully value intangibles? Employee satisfaction and equity prices 2018Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence 1997Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris 2012Are Overconfident CEOs Better Innovators?2011Overconfidence and Early‐Life Experiences: The Effect of Managerial Traits on Corporate Financial Policies

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