ABSTRACT The tension between earnings pressure and environmental, social, and governance (ESG) performance reflects a core conflict in corporate sustainability strategies. However, the role of executive compensation incentives in shaping this relationship remains poorly understood. Guided by prospect theory and principal‐agent theory, we examine how earnings pressure affects ESG performance and how equity incentives moderate this relationship, using a sample of Chinese A‐share listed firms from 2009 to 2023. Our results indicate that: (1) earnings pressure significantly suppresses ESG performance; (2) restricted stock mitigates this negative relationship; when the duration or intensity of equity incentives exceeds specific thresholds, they reverse the negative effect of earnings pressure on ESG performance; (3) ESG underinvestment induced by earnings pressure weakens green competitiveness and prompts long‐term investors to withdraw, and is associated with stronger motivations for management to engage in financial misreporting. These findings offer substantive insights for corporate governance.
Zhong et al. (2026) studied this question.