<scp>CEO</scp> Overconfidence, Industry Competition, and <scp>ESG</scp> Performance

ABSTRACT This study examines the interplay among CEO overconfidence, industry competition, and firms' ESG (Environmental, Social, and Governance) performance. With the growing importance of ESG management, firms are investing more in ESG initiatives as a strategic approach to mitigating downside risk. However, overconfident CEOs, characterized by their inclination toward risk‐taking, may be less likely to invest in ESG activities, thereby potentially undermining ESG performance. Utilizing panel regression analysis on data from U.S. manufacturing firms spanning 2002 to 2020, our findings reveal that firms led by overconfident CEOs tend to achieve significantly lower ESG performance scores, underscoring the detrimental effects of managerial overconfidence. Furthermore, the adverse impact is amplified in highly competitive industries, where restricted access to information and heightened uncertainty intensify the influence of CEO overconfidence. This study contributes to the literature by offering a nuanced understanding of how CEO behavioral traits interact with industry dynamics to shape ESG outcomes.