ESG performance and innovation in listed manufacturing companies–A prospect theory perspective

Xiao Lei and Qin Tu

Finance Research Letters, 2025, vol. 72, issue C

Abstract: This paper uses panel data from Chinese manufacturing firms (2009-2023) to explore the piecewise linear relationship between ESG performance and innovation through prospect theory. The findings indicate that ESG improvements enhance innovation capabilities, with firms exhibiting behaviors like reference dependence, loss aversion, and diminishing marginal utility. These effects are more pronounced in heavily polluting industries and companies experiencing the COVID-19 pandemic. Further analysis reveals that firm-level dynamic reference points also play a role, and external attention is a crucial motivator for shifts in corporate behavior. This study provides a more comprehensive and nuanced understanding of ESG's impact on corporate innovation.

Keywords: ESG performance; Innovation; Prospect theory; Reference point (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324016325

DOI: 10.1016/j.frl.2024.106603

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