CEO Overconfidence and Corporate ESG: The Role of Firm Specific Economics Policy Uncertainty

Abstract

This study investigates the relationship between CEO overconfidence and corporate ESG performance, particularly how this relationship is influenced by perceived economic policy uncertainty. Utilizing data from non-financial listed companies in China’s Shanghai and Shenzhen A-shares from 2010 to 2020, this study constructs a firm-specific index of perceived uncertainty through text mining techniques. This analysis, grounded in the “overconfidence” theory from behavioral economics, examines how CEO characteristics impact ESG performance. Employing a dual fixed-effects panel regression model, our empirical findings reveal that CEO overconfidence significantly enhances corporate ESG performance, especially when perceptions of external economic policy uncertainty are heightened. Overconfident executives tend to view external risks as opportunities to showcase their decision-making and judgment skills. As a result, they are more likely to implement proactive ESG strategies to stabilize external expectations, strengthen corporate resilience, and leverage non-financial disclosures to enhance the firm’s reputation in the capital market. The conclusions drawn from this study offer valuable theoretical insights and practical implications for macroeconomic policy formulation and for empowering executive teams to foster corporate sustainable development.