Managerial short-termism, ESG decoupling, and digital signaling: environmental governance evidence from China

Abstract

ESG disclosure has become an important mechanism through which firms communicate environmental responsibility. However, whether reported ESG information reflects underlying environmental performance remains uncertain in transitional institutional environments. Using a panel of Chinese A-share listed firms from 2009 to 2024, this study examines the association between managerial short-termism and ESG disclosure–performance divergence, and further investigates whether observable digital investment conditions the risk consequences of such divergence. ESG decoupling is measured as the gap between ESG disclosure intensity and verifiable environmental compliance outcomes. The results show that firms with stronger short-term managerial incentives are associated with greater ESG disclosure–performance divergence. ESG decoupling is also positively associated with corporate downside risk, and this association is more pronounced among firms with higher levels of observable digital investment. These findings are consistent with the view that visible digital investment may reinforce the perceived credibility of ESG disclosure when environmental performance is not fully verifiable, thereby amplifying the risk implications of ESG decoupling. The study contributes to research on ESG credibility, environmental governance, digital signaling, and sustainable corporate behavior in transitional economies.