From greed to good: how government regulations of executive compensation impact corporate ESG performance?

This study investigates the impact of government regulation for CEO compensation on the environmental, social, and governance (ESG) performance of Chinese state-owned enterprises (SOEs) from 2011 to 2020. We utilize a difference-in-differences (DiD) regression framework to examine this relationship and ensure validity through parallel trend assessment. Our results affirm that government CEO pay regulation negatively affects ESG performance. We also explore the moderating impact of social trust and CEO shareholding, uncovering evidence that in regions where social trust holds significance, the adverse impact of pay regulation on ESG performance diminishes. Furthermore, higher CEO shareholding serves as a moderator, aligning CEO and shareholder interests to mitigate the adverse effects of government pay policies. To fortify the robustness of our main findings, we employ additional tests, including alternative variables for CEO pay restrictions, propensity score matching, placebo tests, and the sys-GMM model.