The Impact of ESG Performance on Corporate Investment Efficiency: Evidence from Chinese Listed Companies

Zhuo Li, Yeteng Ma, Li He () and Zhili Tan
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Zhuo Li: Faculty of Applied Economics, University of Chinese Academy of Social Sciences, Beijing 102488, China
Yeteng Ma: Faculty of Applied Economics, University of Chinese Academy of Social Sciences, Beijing 102488, China
Li He: Faculty of Applied Economics, University of Chinese Academy of Social Sciences, Beijing 102488, China
Zhili Tan: School of Software & Microelectronics, Peking University, Beijing 100871, China

JRFM, 2025, vol. 18, issue 8, 1-22

Abstract: Recent theoretical and empirical studies highlight that information asymmetry and owner–manager conflict of interest can distort corporate investment decisions. Building on this premise, we hypothesize that superior environmental, social, and governance (ESG) performance mitigates these frictions by (H1) alleviating financing constraints and (H2) intensifying external analyst scrutiny. To test these hypotheses, we examine all Shanghai and Shenzhen A-share non-financial firms from 2009 to 2023. Using panel fixed-effects and two-stage least squares with an industry–province–year instrument, we find that higher ESG performance significantly reduces investment inefficiency; the effect operates through both lower financing constraints and greater analyst coverage. Heterogeneity analyses reveal that the improvement is pronounced in small non-state-owned, non-high-carbon firms but absent in large state-owned high-carbon emitters. These findings enrich the literature on ESG and corporate performance and offer actionable insights for regulators and investors seeking high-quality development.

Keywords: ESG; corporate investment efficiency; financing constraints; analyst attention; sustainable development (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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