Executive compensation and ESG controversies: Does culture matter?

The institutional push for corporate accountability and transparency is drawing attention to sustainability-oriented corporate governance mechanisms. This study contributes to the growing literature in this field, by harnessing an open-system approach to corporate governance and focusing on the interplay between organizational and institutional determinants of environmental, social and governance (ESG) m. Specifically, it draws on the agency and institutional theory to hypothesize the relationship between ESG-linked executive compensation and ESG controversy score across national cultures. The hypotheses are tested using a panel dataset of 4066 public firms from 56 countries during 2010-2020. The findings indicate a marginally statistically significant negative association between ESG-oriented executive compensation and corporate misconduct. The study also indicates that the relationship is largely determined by the national culture. In particular, ESG incentives are found for firms headquartered in low power distance, low uncertainty avoiding, individualistic and masculine countries.