THE GOVERNANCE EFFECT OF ESG RESPONSIBILITY FULFILLMENT: FROM THE PERSPECTIVE OF EXCESSIVE EXECUTIVE COMPENSATION

Abstract

Embedding ESG principles into internal and external corporate governance mechanisms to effectively mitigate agency conflicts is pivotal for achieving sustainable development. This study examines the impact of ESG responsibility fulfillment on agency conflicts, using excessive executive compensation as a focal lens, with data from Chinese A-share listed companies (2009–2022). The findings reveal that higher levels of ESG responsibility fulfillment correlate with lower levels of excessive executive compensation, indicating ESG’s role in alleviating agency conflicts. Mechanism tests identify four pathways: enhancing information transparency, constraining managerial power, attracting media attention, and increasing analyst focus, all of which suppress excess compensation. Heterogeneity analysis shows that the inhibitory effect of ESG responsibility fulfillment on managers’ excess compensation is more pronounced in firms with better operational performance, higher market competition intensity, non-polluting industries, and those located in economically advanced regions. Further analysis demonstrates that ESG responsibility fulfillment improves executive pay-performance sensitivity. The study highlights ESG’s governance utility in mitigating agency conflicts through internal and external mechanisms, enhancing compensation contract effectiveness, and protecting investor interests. This research enriches the literature on the microeconomic consequences of ESG responsibility fulfillment and provides a theoretical foundation for policymakers to design ESG regulations and for firms to engage in ESG practices.