Chief executive officer incentives and integrated reporting practices: Evidence from the US market

Abstract

This study examines whether the horizon structure (short-term vs. long-term) of incentives for a Chief Executive Officer (CEO) influences their tendency toward integrated reporting practices. Drawing from alignment incentive theory and using a sample from the United States, we find that providing CEOs with long-term incentives (stocks and options) significantly increases the integration of economic, social, and environmental sustainability considerations into their day-to-day decision-making. Conversely, our results show that short-term incentives (salary and bonuses) have a significantly negative effect. These findings remain consistent when we separately examine the influence of each component of CEO compensation on sustainability integration. Further analysis finds that firm value creation is enhanced when CEOs are incentivized with long-term rewards through their engagement in integrated reporting. However, when CEOs are incentivized with short-term rewards, value creation diminishes due to a focus on immediate results rather than strategic decision-making. The analysis also shows that CEOs with a long-term decision horizon tend to adopt integrated reporting, especially when incentivized with long-term rewards, while short-term incentives reduce this tendency.