Does CEO Power Moderate the Link Between ESG Performance and Financial Performance? A Focus on the German Two-Tier System

Purpose – Based on stakeholder and upper echelons theory, this study analyses whether the link between environmental, social and governance (ESG) performance and financial performance is moderated by Chief executive officer (CEO) power. Design/methodology/approach - Listed corporations with reference to the German two-tier system (HDAX and SDAX) for the business years 2010-2018 (775 firm-year observations) have been included. Fixed effects panel regression analysis was conducted to analyze the link between ESG performance (in total and its three pillars) and financial performance (ROA) with special reference to the interaction of CEO power.Findings – While ESG performance has a positive impact on financial performance, the link is more pronounced by CEO power. Thus, in line with prior research on the one-tier system, CEO power can positively contribute to the CSR-business case in the German two-tier system. Our results remain constant after conducting several robustness checks. Originality/value - A key contribution to the empirical CSR literature can be stated as the moderating role of CEO power in the ESG-financial performance link is rather neglected in prior studies. Thus, corporate governance and sustainability should be classified as interactive aspects for the business case of a successful stakeholder management