Environmental, social, and governance performance and leverage manipulation

Jing Huang, Jiaxuan Guo and Yongheng Chen

Finance Research Letters, 2025, vol. 74, issue C

Abstract: Effective governance of corporate leverage manipulation is a micro-foundation for preventing and mitigating major financial risks. Using data from A-share listed companies in China, we find that ESG performance significantly reduces leverage manipulation, particularly in social responsibility and corporate governance sub-dimensions. Mediating mechanism tests indicate that ESG performance mitigates financing constraints and reduces agency problems, thereby inhibiting corporate leverage manipulation. Heterogeneity analysis reveals that the governance effect of ESG performance is more pronounced in growth-oriented companies. These findings provide valuable insights for firms to practice ESG principles and mitigate the risks of leverage manipulation.

Keywords: ESG performance; Leverage manipulation; Financing constraints; Agency problems (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:74:y:2025:i:c:s1544612325000017

DOI: 10.1016/j.frl.2025.106736

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