The impact of capital market enforcement intensity on corporate ESG performance: Evidence from China

Jianglong Yu, Hongmei Liu, Xiaodong Lei and Ke Liu

Economic Analysis and Policy, 2025, vol. 87, issue C, 2534-2553

Abstract: This paper investigates the impact of capital market enforcement intensity on corporate ESG performance. Using data from Chinese listed firms from 2010 to 2020, we find that enforcement activities in the capital market significantly promote corporate ESG performance. Mechanism tests demonstrate that legitimacy pressure, resource acquisition, and peer/learning effects are the main mechanisms through which capital market enforcement intensity influences corporate ESG performance. Pathway analyses indicate that firms may enhance information disclosure quality, engage in green investments, pursue green innovation, and increase board gender diversity, thereby alleviating legitimacy pressure and meeting stakeholder expectations. Further analyses indicate that this effect is more pronounced in larger firms, highly competitive industries, and non-state-owned enterprises. Sub-dimensional tests find that enforcement intensity not only improves corporate governance performance, but also significantly enhances corporate environmental and social responsibility performance. Our study contributes to the understanding of the spillover effects of regulatory enforcement and offers valuable insights for regulators to improve corporate compliance and ESG performance.

Keywords: Sustainable development; ESG performance; Capital market; Enforcement intensity; Legitimacy pressure; Industry competition (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:87:y:2025:i:c:p:2534-2553

DOI: 10.1016/j.eap.2025.08.011

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