The Collaborative Innovation Effect of ESG Signals: Integrating Signaling and Trust Theories

Ge Ren, Ping Zeng and Xi Zhong

Management and Organization Review, 2025, vol. 21, issue 1, 73-101

Abstract: On the basis of signaling and trust theories, we explore the impact of focal firms’ environmental, social, and governance (ESG) performance on their collaborative innovation (co-innovation). We argue that high ESG performance serves as a positive signal that focal firms engage less in opportunistic behavior in the co-innovation process. This, in turn, makes it easier for focal firms to gain the trust of potential external innovation collaborators (collaborators) and ultimately increases the level of co-innovation in focal firms. Guided by signaling and trust theories, we further argue that heavy polluting firm attributes and historical co-innovation alter the impact of ESG signals on collaborators’ trust, which in turn leads to heterogeneity in the positive impact of ESG performance on firms’ co-innovation. Based on empirical data on A-share manufacturing companies listed in China from 2010 to 2021, we obtained empirical evidence to support the above theoretical arguments. This study provides new insights for a refined understanding of the innovation consequences of ESG performance and important implications for shareholders and policymakers to better encourage and guide firms in co-innovation.

Date: 2025
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