Does managerial ability transform organization from the inside out? : evidence from sustainability performance of financially constrained firms in an emerging economy

Due to increasing pressure from stakeholders, managers face many hurdles in transforming their businesses to advance corporate sustainability. This study explores the relationship between the ability of so-called "change agents for sustainability" with sustainability performance (SP), particularly in the challenging environment of financing constraints. This study also reveals the mechanism by which competent managers alleviate financial constraints in firms. The panel data estimation method is used on a dataset of 4132 Chinese firms from 2010 to 2019. Empirical results reveal that CEO management ability is positively related to SP. Furthermore, the findings contend that competent CEOs alleviate financing constraints in Chinese firms by improving their SP. Moreover, the competent CEOs in financially constrained firms focus more on sustainability than competent CEOs in non-financially constrained firms. The results are robust for alternative estimation techniques. In light of the study's conclusion, the implications and recommendations are also illustrated.