How Does CEO Career Horizon Affect ESG Engagement? The Contingent Role of Individual and Multiple Performance Feedback

Abstract

Despite the growing emphasis on the CEO effect on ESG engagement, the role of CEO career horizon on ESG engagement is underexplored. Drawing on the principal-agent theory and behavioral theory of the firm (BTOF), this study investigates the impact of CEO career horizon on ESG engagement in the context of China, an emerging economy. We offer a contingent framework based on BTOF by discussing the contingent roles of individual and multiple performance feedback, clarifying how CEOs' perceptions of risk exposure reshape the association between CEO career horizon and ESG engagement. We derive three key findings employing a dataset of Chinese-listed firms from 2007 to 2021. First, we identify an inverted U-formed association of CEO career horizon-ESG engagement. Second, considering the role of individual performance feedback, historical and social underperformance strengthen this impact, respectively, revealing that internal shareholders' pressure, induced by historical underperformance, and external stakeholders' pressure, caused by social underperformance, amplify CEOs' risk exposure, prompting their ESG engagement to reduce risk. Conversely, social outperformance weakens the benchmark effect, but historical outperformance has no significant impact. Finally, under multiple performance feedback, consistent outperformance (underperformance) weakens (strengthens) the effect. In ambiguous situations, the combination of social underperformance and historical outperformance enhances the effect, whereas the reversed combination has no significant impact. Our results contribute to the literature about the CEO effect on ESG engagement by revealing the private motivations of CEOs' ESG engagement and offering the CEOs' holistic risk exposure perceived mechanism in clear and ambiguous situations.