Exploring the Relationship Between ESG Activities and Firm Performance: The Carrot and Stick Approach

Jeongbin Whang, Assistant Professor of Marketing, Department of Business Administration, Jeju National University, Jeju Special Self-Governing Province, KoreaFollow
Jong-Ho Lee, Professor of Marketing, Korea University Business School, Korea University, Seoul, KoreaFollow
Jaeho Lee, Professor of International Business, Department of International Business and Trade, Kyung Hee University, Seoul, KoreaFollow

ORCID

Jong-Ho Lee: https://orcid.org/0000-0002-3010-2943

Abstract

This study uses stakeholder theory to investigate the impact of firms' ESG activities on performance, paying particular attention to the moderating roles of executive ESG compensation (the ``carrot'') and external ESG audits (the ``stick''). Utilizing Thomson Reuters ESG data from 1,523 US firms over six years (2017–2022) and applying fixed-effects models, the analysis reveals that environmental and social activities are positively associated with firm performance. In contrast, governance activities are negatively related to financial performance but positively related to non-financial outcomes. Furthermore, executive ESG compensation and external audits positively moderate the relationship between ESG activities and firm performance. Executive compensation serves as a filtering mechanism that promotes performance-oriented ESG initiatives, while external audits enhance credibility and foster stakeholder trust through independent verification. These findings provide empirical support for the assertion of stakeholder theory that ESG activities can generate value for multiple stakeholder groups simultaneously.

Recommended Citation

Whang, Jeongbin; Lee, Jong-Ho; and Lee, Jaeho (2026) "Exploring the Relationship Between ESG Activities and Firm Performance: The Carrot and Stick Approach," Asia Marketing Journal: Vol. 28 : Iss. 1 , Article 6.
Available at: https://doi.org/10.53728/2765-6500.1676