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Incentivizing Sustainability

Kilström, Ebba LU and Norén, Alexander LU (2024) BUSN79 20241
Department of Business Administration
Abstract
Purpose: To investigate the relationship between ESG-linked executive compensation and the performance of Nordic publicly listed companies in terms of both ESG and financial metrics.

Methodology: The econometric approach utilized in this study involves fixed effects panel regressions. The regressions use ESG scores and financial performance metrics as dependent variables, with ESG-linked executive compensation (a dummy variable) as the main explanatory variable. We introduce controls for firm characteristics, including year effects. Additionally, an exploratory study is conducted using manually collected data on a smaller sub-sample to analyse the impact of the size of ESG-linked compensation on performance.

Theoretical perspectives:... (More)
Purpose: To investigate the relationship between ESG-linked executive compensation and the performance of Nordic publicly listed companies in terms of both ESG and financial metrics.

Methodology: The econometric approach utilized in this study involves fixed effects panel regressions. The regressions use ESG scores and financial performance metrics as dependent variables, with ESG-linked executive compensation (a dummy variable) as the main explanatory variable. We introduce controls for firm characteristics, including year effects. Additionally, an exploratory study is conducted using manually collected data on a smaller sub-sample to analyse the impact of the size of ESG-linked compensation on performance.

Theoretical perspectives: The theoretical perspective for this paper consists of Corporate Governance, Agency theory, Shareholder- and Stakeholder theory, as well as theories cornering motivation i.e., Social-Approval, Self-Approval, and Reciprocity.

Empirical foundation: Our sample consists of publicly listed Nordic companies, covering the period from 2014 to 2022, with a final dataset comprising 1,272 firm-year observations. Additionally, a smaller sub-sample was analysed to specifically assess the impact of the size of ESG-linked compensation on performance.

Conclusions: The study finds that while ESG-linked executive compensation positively impacts ESG performance, its effect on financial performance is less consistent. These results suggest that while ESG-linked pay structures may enhance sustainability outcomes, their financial benefits are not immediately evident. (Less)
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author
Kilström, Ebba LU and Norén, Alexander LU
supervisor
organization
course
BUSN79 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
ESG-linked compensation, ESG Performance, Financial Performance, Corporate Governance, Motivation
language
English
id
9170418
date added to LUP
2024-08-07 16:18:23
date last changed
2024-08-07 16:18:23
@misc{9170418,
  abstract     = {{Purpose: To investigate the relationship between ESG-linked executive compensation and the performance of Nordic publicly listed companies in terms of both ESG and financial metrics.

Methodology: The econometric approach utilized in this study involves fixed effects panel regressions. The regressions use ESG scores and financial performance metrics as dependent variables, with ESG-linked executive compensation (a dummy variable) as the main explanatory variable. We introduce controls for firm characteristics, including year effects. Additionally, an exploratory study is conducted using manually collected data on a smaller sub-sample to analyse the impact of the size of ESG-linked compensation on performance.

Theoretical perspectives: The theoretical perspective for this paper consists of Corporate Governance, Agency theory, Shareholder- and Stakeholder theory, as well as theories cornering motivation i.e., Social-Approval, Self-Approval, and Reciprocity. 

Empirical foundation: Our sample consists of publicly listed Nordic companies, covering the period from 2014 to 2022, with a final dataset comprising 1,272 firm-year observations. Additionally, a smaller sub-sample was analysed to specifically assess the impact of the size of ESG-linked compensation on performance.

Conclusions: The study finds that while ESG-linked executive compensation positively impacts ESG performance, its effect on financial performance is less consistent. These results suggest that while ESG-linked pay structures may enhance sustainability outcomes, their financial benefits are not immediately evident.}},
  author       = {{Kilström, Ebba and Norén, Alexander}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Incentivizing Sustainability}},
  year         = {{2024}},
}