How Do Corporate Environmental, Social, and Governance (ESG) Factors Affect Financial Performance?

Xinxin Che, Chenhua Song and Jining Li ()
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Xinxin Che: School of Finance, Dongbei University of Finance and Economics, Dalian 116025, China
Chenhua Song: Department of Mechanical, Aerospace & Civil Engineering, The University of Manchester, Manchester M13 9PL, UK
Jining Li: School of Finance, Dongbei University of Finance and Economics, Dalian 116025, China

Sustainability, 2024, vol. 16, issue 23, 1-23

Abstract: Responsible investments are becoming increasingly relevant in stakeholder decision-making, propelled by the emphasis on sustainable development. Specifically, enterprises should acknowledge the significance of creating value for multiple shareholders based on the environment, society, and corporate governance. In this article, we contribute to the theoretical and empirical literature on corporate environmental, social, and governance (ESG) performance in China. This paper employs a two-way fixed-effect model to examine the influence of ESG activities on financial performance, focusing on 3268 Shanghai and Shenzhen A-share companies that have consistently participated in such activities from 2011 to 2022. The findings indicate that improvements in ESG practices positively influence corporate financial performance, with property rights and industry categorization moderating this relationship. Furthermore, agency cost, financing cost, social reputation, market power, and enterprise innovation partially mediate ESG performance and financial performance. This study encourages enterprises to integrate sustainable value creation into the national development strategy, thereby achieving harmonious economic and social development.

Keywords: ESG performance; financing cost; enterprise innovation; social reputation; financial performance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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