Differences in Board Independence’s Impact on ESG with Respect to Power Constraints: Evidence from a Heterogeneity Perspective

Abstract

This study investigates the relationship between board independence, CEO power, and environmental, social, and corporate governance (ESG) performance of Chinese companies. The study finds that in industrial firms with significant environmental concerns, board independence fails to moderate the adverse effects of strong CEO power on ESG performance. This failure is attributed to management’s excessive focus on short-term profits and lack of checks and balances. However, in non-industrial companies, the positive effect of CEO power on ESG performance can be dampened by board independence. This heterogeneity also varies among companies with different political backgrounds. Moreover, the study emphasizes the significance of potential trade-offs between short-term financial benefits and long-term sustainability objectives across regions and corporate governance methodologies.