Earnings Pressure and Environmental Social and Governance Performance: How Executive Compensation Incentives Mitigate Short-Termism

The tension between earnings pressure and environmental, social, and governance (ESG) performance reflects a core conflict in corporate sustainability strategies. However, the role of executive compensation incentives in shaping this relationship remains poorly understood. Guided by prospect theory and principal-agent theory, we examine how earnings pressure affects ESG performance and how equity incentives moderate this relationship, using a sample of Chinese A-share listed firms from 2009 to 2023. Our results indicate that: (1) earnings pressure significantly suppresses ESG performance; (2) restricted stock mitigates this negative relationship; when the duration or intensity of equity incentives exceeds specific thresholds, they reverse the negative effect of earnings pressure on ESG performance; (3) ESG underinvestment induced by earnings pressure weakens green competitiveness and prompts long-term investors to withdraw, and is associated with stronger motivations for management to engage in financial misreporting. These findings offer substantive insights for corporate governance.