Managerial Overconfidence and ESG Performance: Financial Policy Channels in an Emerging Market

This study examines the relationship between managerial overconfidence and environmental, social, and governance (ESG) performance through firm-level financial policy channels in an emerging-market context. Using panel data from non-financial firms listed on the Indonesia Stock Exchange during 2015–2024, this study adopts a multidimensional channel-based perspective in which managerial overconfidence is indirectly reflected through financing, liquidity, and investment decisions. Fixed-effects estimation with Driscoll–Kraay standard errors is employed as the baseline approach and complemented by lagged specifications, system GMM estimation, alternative measurements, and quantile regressions to assess robustness. The findings suggest that managerial overconfidence does not exert a direct and uniform influence on ESG performance but operates indirectly through heterogeneous financial policy behavior. The financing channel provides weak and unstable evidence, whereas the liquidity channel shows a relatively stronger positive association with ESG performance. The investment channel appears most sensitive to measurement and model specification, indicating that different operationalizations may capture distinct dimensions of managerial overconfidence. This study contributes to the behavioral corporate finance and ESG literature by showing that managerial overconfidence influences sustainability outcomes indirectly through heterogeneous financial policy mechanisms in an emerging market setting while highlighting the importance of temporal dynamics, endogeneity, and measurement sensitivity.