How Management Incentives Influence Corporate Financial Performance: A Mediating Effect Analysis Based on ESG Performance

Abstract

Against the backdrop of China’s dual-carbon targets and the pursuit of high-quality economic development, the synergistic relationship between ESG (environmental, social, and governance) performance and corporate governance mechanisms has become increasingly prominent. Using Chinese A-share listed companies from 2020 to 2024 as the research sample, this paper employs panel-data multiple regression and mediating-effect models to empirically examine both the direct impact of managerial incentives on corporate financial performance and the underlying transmission mechanisms. The results show that (1) both equity-based and compensation-based managerial incentives exert a statistically significant positive effect on corporate financial performance; and (2) ESG performance plays a significant partial mediating role in the relationship between managerial incentives and corporate financial performance—specifically, a transmission pathway exists in which managerial incentives improve ESG performance, which in turn enhances financial performance. These findings remain robust after a series of robustness checks, including variable substitution. By adopting a sustainable-development perspective, the study extends the literature on the economic consequences of managerial incentives. It also supplies empirical evidence that can help firms incorporate ESG metrics into executive evaluation systems, refine incentive contract design, and assist regulators in improving relevant institutional frameworks.