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Short‐Term Profits for Long‐Term Value: Corporate ESG Dilemmas Under Earnings Pressure and Pathways to Governance

Sha Tang1, Abdullahi D. Ahmed2, Chante Jian Ding2

1 Economics and Management College South China Normal University Guangzhou China2 School of Accounting, Information Systems and Supply Chain RMIT University Melbourne Victoria Australia

Accounting & Finance · 2026-07-01 · DOI: 10.1111/acfi.70252

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Abstract

ABSTRACT This study examines the negative effect of earnings pressure (EP) on corporate environmental, social, and governance (ESG) performance and explores governance mechanisms that can address this problem. Drawing on behavioural agency theory and incorporating insights from resource allocation theory and agency theory, this paper identifies the key mechanism through which EP triggers managers' loss aversion and short‐term orientation. Under such pressure, managers tend to treat ESG investments as an opportunity to reduce cost, which leads to the misallocation of ESG resources and the erosion of long‐term value. The study further finds that employee stock ownership plans (ESOPs) can effectively mitigate this negative effect. The moderation role of ESOPs operates through two channels. First, ESOPs reducing managers' loss aversion align the interests of employees and the firm, thereby reducing managers' loss aversion and limiting short‐term decision‐making. Second, ESOPs create a broad form of internal supervision that helps correct the distorted resource allocation logic caused by managers' cognitive biases. However, the governance effect of ESOPs is not uniform. The effect is more pronounced when the employee contribution ratio is higher, the participation is broader, and grant conditions are linked to long‐term performance indicators.

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Sha Tang, Abdullahi D. Ahmed, Chante Jian Ding (2026). Short‐Term Profits for Long‐Term Value: Corporate ESG Dilemmas Under Earnings Pressure and Pathways to Governance. Accounting & Finance. https://doi.org/10.1111/acfi.70252
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