Racing to Be Green? How Industry Tournament Incentives Shape Corporate Environmental Performance

In this paper, we explore how industry‐level tournament incentives influence firms’ environmental outcomes, drawing on a dataset of 9,644 Chinese A‐share firm‐year observations spanning 2010 through 2020. Our empirical analysis reveals that stronger competitive incentives within an industry are linked to superior environmental performance at the firm level. We then decompose executive competitive orientation into three facets—ownership type, geographic location of the firm, and the degree of industry homogeneity—to assess how these characteristics shape the core relationship. The results indicate that when executives possess a pronounced competitive drive, the beneficial effect of industry tournament incentives on environmental performance is amplified. Moreover, this reinforcing effect is particularly evident for state‐controlled enterprises, companies headquartered in eastern provinces, and sectors exhibiting high similarity among rivals. To ensure the robustness of our conclusions, we employ a variety of techniques—including tests for reverse causality, checks for omitted‐variable bias, two‐stage least squares estimation, and propensity‐score matching. Overall, our findings furnish solid empirical support for the role of tournament‐style compensation in advancing environmental objectives and offer practical guidance for regulators and corporate boards seeking to refine executive pay schemes and strengthen environmental governance.