CEO Values and Corporate ESG Performance

Abstract

Abstract

ABSTRACT Research Question/Issue We construct a novel CEO Values Index (henceforth, CVI ) based on environmental, social, and governance (ESG)–oriented values using observable behavioral and socio‐psychological characteristics. We examine whether and how these managerial values help explain variations in ESG performance across firms. Research Findings/Insights Examining a decade‐long hand‐collected dataset of S&P 500 CEO values, we document a positive and robust relationship between CVI and ESG performance. One standard‐deviation increase in CVI is associated with around 2% increase in corporate ESG score—illustrating the role of managerial values in shaping corporate policy at a granular level, that is, E, S, and G performance separately. The enhancement effect of CVI on ESG is as follows: (1) long‐lasting; (2) prone to political tendencies and amplified in democratic states; (3) effective in reducing ESG greenwashing behavior; and (4) achieved without sacrificing firm value. We address potential endogeneity by examining policy changes with difference‐in‐difference‐in‐difference, as well as GMM. Theoretical/Academic Implications The findings contribute to the Upper Echelons literature by providing a multidimensional and empirically tractable measure of managerial values. They highlight the importance of moving beyond single proxies and demonstrate how values‐based characteristics of top executives shape firm‐level ESG outcomes. More broadly, the results offer a richer account of the mechanisms through which individual‐level attributes translate into corporate policies and practices. Practitioner/Policy Implications Regulators and policymakers aiming to improve corporate ESG outcomes should give more weight to managerial values and behaviors. Executive actions speak louder than words. For firms, the results underscore the importance of aligning leadership orientation with ESG objectives to support credible implementation. For policymakers and regulators, the findings point to the limits of relying solely on formal ESG disclosures. For investors, the CVI provides a complementary lens for evaluating the credibility of firms' ESG positioning and distinguishing between substantive engagement and more symbolic initiatives.