Managerial Myopia and ESG Performance: Evidence from China

Purpose: This paper draws on the Upper Echelon Theory and the Agency Theory to explore a special aspect of managers’ behavioral characteristics—managerial myopia—as a driving factor in firms’ ESG performance, a key metric for sustainable development. This study utilizes a sample of Chinese A-share listed firms from 2010 to 2021. It integrates data from the China Stock Market and Accounting Research (CSMAR) database, the Wind database for corporate ESG performance, a managerial myopia index constructed through text analysis, machine learning, and dictionary methods, internal control data from the DIB Internal Control Database, and the Economic Policy Uncertainty (EPU) index. The study examines the relationship between managerial myopia and ESG performance and explores the moderating effects of internal control, corporate transparency, and EPU. This study finds that managerial myopia significantly impedes corporate sustainability by significantly negatively impacting ESG performance. This finding underscores a critical challenge to sustainable development: short-term managerial orientation can compromise long-term environmental and social goals. However, robust internal governance mechanisms, such as effective internal control and high corporate transparency can mitigate this negative impact, while higher EPU exacerbates it. Additionally, the detrimental effect of managerial myopia is more pronounced in firms with higher business complexity, smaller firm size, and state-owned enterprises (SOEs). This paper suggests that, in addition to demographic characteristics and management experience, corporate governance and hiring practices should consider managers’ temporal orientation to foster sustainable business practices. Firms should focus on establishing a robust internal control environment and increasing corporate transparency to safeguard long-term sustainability objectives from short-sighted managerial behavior, especially in situations of high economic policy uncertainty and in organizations with higher business complexity, smaller firm size, and SOEs. The main limitations of this study include the lack of analysis on the influencing mechanisms and not fully addressing the endogenous problem, and the international generalizability of the finding should be further expanded in future. This paper contributes to sustainability science by extending the current literature focusing on the behavioral drivers of firms’ ESG performance, emphasizing the under-explored role of managerial myopia. This provides meaningful insight into the role of executive characteristics in shaping corporate sustainability, particularly in emerging market contexts. It also adds value by identifying how internal governance and external environmental factors condition this relationship, offering insights for policymakers and corporate leaders aiming to advance sustainable development.