Corporate executives’ incentives and ESG performance

• We examine the effect of managers’ manipulative tendency on ESG performance. • Corporate executives’ share pledging negatively affects firms’ ESG scores. • The negative effect is salient for environmental and social but governance scores. • Earnings management is positively but weakly related to ESG performance. • The relations to incentive alignment may explain the different outcomes. This study investigates the effect of managers' manipulative tendencies on firms’ environmental, social, and governance (ESG) performance using the share pledging and earnings management data from FY2015 to FY2020. We find that corporate executives’ share pledging activities negatively affect firms’ ESG performance. The effect is salient for the environmental and social but governance criteria. Furthermore, we find weak evidence for the relationship between earnings management and ESG performance. The results imply that the managers who manage earnings in order to increase their monetary income may care less about ESG performance that is not strongly aligned to their compensation.