The Impact of TMT Stability on Firms' Sustainable Development: ESG Scores as a Constraint or Catalyst for Chinese Heavy‐Polluting Firms?

ABSTRACT The impact of environmental, social, and governance (ESG) scores on firm performance (FP) has long been a focus of theoretical and practical debate. We address this controversy by focusing on Chinese heavy‐polluting firms. Drawing on agent theory and threat rigidity theory, we propose that top management team (TMT) stability and external pressures (government environmental punishment and negative media coverage) jointly affect the relationship between ESG scores and FP. Analyzing data from 1392 A‐share listed heavy‐polluting firms in China from 2007 to 2022, our findings reveal that heavy‐polluting firms with higher ESG scores tend to exhibit poorer FP. Notably, this relationship varies based on TMT stability and external pressures. Specifically, TMT stability weakens the negative effect of ESG scores on FP. When external pressures are high, TMT stability negatively impacts the relationship between ESG scores and FP. Conversely, TMT stability positively affects this relationship when external pressures are low. This study identifies the specific conditions in which TMT stability affects from the perspective of agency theory and threat rigidity theory, and provides a new insight for firms and governments in emerging economies to promote ESG practices effectively.