Caught in ESG trap? Evidence from earnings pressure by examining CEO overconfidence and pay slice

Purpose This study aims to examine how firms balance long-term environmental, social and corporate governance (ESG) commitments with more tactical ESG actions aimed at managing capital-market expectations, particularly through dialogues with securities analysts. Drawing on a managerial-cognitive perspective, it investigates how CEO overconfidence and CEO pay slice shape ESG decisions under varying levels of earnings pressure. Design/methodology/approach Using a panel of 14,697 firm-year observations from S&P 1500 firms over 2003–2024, the study estimates OLS regressions of tactical ESG investing on earnings pressure and its interactions with CEO overconfidence and pay slice, and applies time-series clustering to firms’ ESG score trajectories to identify distinct behavioral patterns and industry-driven groupings. Findings The analysis finds that overconfident CEOs are more likely to pursue long-term ESG strategies and resist short-term tactical ESG responses under earnings pressure. In contrast, a high CEO pay slice is associated with increased tactical ESG engagement to meet analyst expectations. Time series clustering reveals industry-driven ESG behavior patterns, reinforcing the need to align governance mechanisms with executive traits and contextual factors in ESG strategy formulation. Practical implications Sustainable development cannot be advanced merely by increasing the visibility or quantity of ESG activity; governance systems must protect the time horizon, substance and accountability of sustainability commitments. Boards and sustainability committees, compensation committees, investors and regulators should therefore reward durable, outcome-oriented ESG implementation over easily adjustable actions that mainly relieve short-term market pressure. Social implications By distinguishing tactical from strategic ESG engagement, the study shows how short-term capital-market pressure may weaken the durability and substance of the corporate sustainability commitments − the sustained investments in capabilities, stakeholder relationships and environmental and social practices − on which social resilience, environmental protection and accountable governance ultimately depend. Originality/value This study reconceptualizes CEO overconfidence as a context-dependent moderator of ESG responses to earnings pressure rather than a simple driver of ESG scores, identifies CEO pay slice as a temporal incentive mechanism and introduces shape-based time-series clustering to uncover the structure of ESG evolution for sustainable development.

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Publication Details

Journal
Sustainability Accounting Management and Policy Journal
Published
2026-10-26
DOI
https://doi.org/10.1108/sampj-07-2025-0969
Primary Topic
Corporate Social Responsibility Reporting
Type
article
Field-Weighted Citation Impact
0.00
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article

Caught in ESG trap? Evidence from earnings pressure by examining CEO overconfidence and pay slice

Heng‐Yu Chang, Wenting Liu
7 links
Sustainability Accounting Management and Policy Journal
Corporate Social Responsibility Reporting
article

Caught in ESG trap? Evidence from earnings pressure by examining CEO overconfidence and pay slice

Heng‐Yu Chang, Wenting Liu
article en

Abstract

Purpose This study aims to examine how firms balance long-term environmental, social and corporate governance (ESG) commitments with more tactical ESG actions aimed at managing capital-market expectations, particularly through dialogues with securities analysts. Drawing on a managerial-cognitive perspective, it investigates how CEO overconfidence and CEO pay slice shape ESG decisions under varying levels of earnings pressure. Design/methodology/approach Using a panel of 14,697 firm-year observations from S&P 1500 firms over 2003–2024, the study estimates OLS regressions of tactical ESG investing on earnings pressure and its interactions with CEO overconfidence and pay slice, and applies time-series clustering to firms’ ESG score trajectories to identify distinct behavioral patterns and industry-driven groupings. Findings The analysis finds that overconfident CEOs are more likely to pursue long-term ESG strategies and resist short-term tactical ESG responses under earnings pressure. In contrast, a high CEO pay slice is associated with increased tactical ESG engagement to meet analyst expectations. Time series clustering reveals industry-driven ESG behavior patterns, reinforcing the need to align governance mechanisms with executive traits and contextual factors in ESG strategy formulation. Practical implications Sustainable development cannot be advanced merely by increasing the visibility or quantity of ESG activity; governance systems must protect the time horizon, substance and accountability of sustainability commitments. Boards and sustainability committees, compensation committees, investors and regulators should therefore reward durable, outcome-oriented ESG implementation over easily adjustable actions that mainly relieve short-term market pressure. Social implications By distinguishing tactical from strategic ESG engagement, the study shows how short-term capital-market pressure may weaken the durability and substance of the corporate sustainability commitments − the sustained investments in capabilities, stakeholder relationships and environmental and social practices − on which social resilience, environmental protection and accountable governance ultimately depend. Originality/value This study reconceptualizes CEO overconfidence as a context-dependent moderator of ESG responses to earnings pressure rather than a simple driver of ESG scores, identifies CEO pay slice as a temporal incentive mechanism and introduces shape-based time-series clustering to uncover the structure of ESG evolution for sustainable development.

Sustainability Accounting Management and Policy Journal
Chang Gung University (TW), Singapore University of Social Sciences (SG)
Openalex Percentile: Top 9%
Corporate Social Responsibility Reporting
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