Abstract
Research on performance feedback has primarily focussed on market activities that the firms would undertake in case of performance shortfall, potentially overlooking secondary or non-market activities. Very few studies have examined the relationship between performance feedback and ESG engagement. Borrowing from the behavioral theory of the firm and control theory, we claim and prove the differential effects of social and historical aspirations on ESG engagement. We further explore the role of the CSR committee in the relationship between performance feedback and ESG engagement. We carry out our study on a rich data set of U.S firms for the time period 2013-2022. Consistent with our assumptions, we obtained partial support for our hypothesis, which states that firms do not always engage in secondary or non-market activities whenever they experience negative performance feedback. We also find that a firm's behavior to engage in ESG activities varies with social and historical aspirations.