How to shape corporate green behavior? — The green governance effect of executive incentive strategies

Abstract

In response to the growing global demand for sustainable development, this study investigates how executive incentive structures shape corporate green behavior in Chinese listed firms. We distinguish among three types of incentives: monetary, equity-based, and consumption-related. Empirical results indicate that performance-driven monetary and equity incentives significantly enhance firms’ environmental engagement. Monetary incentives promote green behavior primarily through improving information transparency and investment efficiency, while equity-based incentives work by reinforcing long-term value orientation and optimizing capital allocation. In contrast, consumption-related incentives substantially hinder green behavior, mainly by weakening managerial sentiment and crowding out resources for environmental initiatives. Further evidence shows that analyst attention amplifies the positive effects of performance-oriented incentives and partially mitigates the negative impacts of consumption-oriented ones. These findings are robust across multiple specifications, including lagged variables, propensity score matching, Heckman correction, and the inclusion of province-year and industry-year fixed effects. The study contributes theoretically by advancing principal–agent theory in the sustainability context and clarifying the mechanisms linking executive compensation to environmental outcomes. Practically, it provides evidence to inform the design of green compensation packages and offers regulatory insights for strengthening environmental disclosure requirements. While grounded in the Chinese context, the findings carry global relevance, offering valuable implications for emerging markets and advanced economies alike in promoting corporate green transformation.