Higher Ability but Lower Responsibility? The Unintended Effects of Managerial Ability on ESG Performance
This study documents a counterintuitive negative effect of higher managerial ability on firms’ responsible activities. Using a sample of Chinese listed firms from 2008 to 2020, we show that firms’ ESG performance declines as managerial ability rises. This effect does not disappear after we account for managerial turnover, observable managerial traits, and prior career experience. A shift—share instrumental variable strategy and a difference-in-differences design based on unexpected managerial departures yield consistent evidence. Mechanism tests indicate that managerial ability first induces a behavioral short-term orientation, driven by overconfidence and career concerns. This behavioral bias then leads managers to reallocate corporate resources across time. Managers shift resources away from long-horizon ESG-related investments and toward short-term expenditures that boost current performance. The negative effect appears stronger in firms with older or male CEOs, state-owned enterprises, mature firms, highly concentrated industries, and regions with lower levels of marketization. Managerial ability exerts a more pronounced negative impact on ESG performance in settings characterized by weaker institutional oversight or greater managerial discretion over corporate resources. The findings indicate that greater managerial ability can unintentionally diminish corporate social responsibility. Firms that rely excessively on highly capable managers may not enhance ESG outcomes as anticipated.
Authors
- Xuankai Zhao (ORCID: https://orcid.org/0000-0001-7029-1411)
- Tao Li (ORCID: https://orcid.org/0000-0001-6082-355X)
- Lin Yan
- Shengkun Zhao
Institutions
- Central University of Finance and Economics (CN)
- City University of Hong Kong (HK)
- Renmin University of China (CN)
Publication Details
- Journal
- Emerging Markets Finance and Trade
- Published
- 2026-06-17
- DOI
- https://doi.org/10.1080/1540496x.2026.2685331
- Primary Topic
- Environmental Sustainability in Business
- Type
- article
- Field-Weighted Citation Impact
- 0.00
Funders
- Major Program of National Fund of Philosophy and Social Science of China