ESG Performance Empowers Financial Flexibility in Manufacturing Firms—Empirical Evidence from China

Jianzhi Wei, Xuesong He () and Yawei Wu
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Jianzhi Wei: School of Economics and Management, Taiyuan University of Technology, Taiyuan 030024, China
Xuesong He: School of Economics and Management, Taiyuan University of Technology, Taiyuan 030024, China
Yawei Wu: School of Economics and Management, Taiyuan University of Technology, Taiyuan 030024, China

Sustainability, 2025, vol. 17, issue 3, 1-21

Abstract: In the context of slowing economic growth and increasing uncertainty, enhancing the financial flexibility of manufacturing enterprises is a critical foundation for promoting the high-quality development of the real economy. This study selects a sample of Chinese A-share-listed manufacturing firms from Shanghai and Shenzhen, spanning the years 2012 to 2022, and constructs a fixed-effects model to examine the impact of ESG performance on the financial flexibility of these firms and its underlying mechanisms. The study finds that: (1) ESG performance significantly enhances corporate financial flexibility. (2) ESG performance promotes financial flexibility primarily through mechanisms such as alleviating financing constraints, improving competitive advantages, and attracting analysts’ attention. (3) Heterogeneity analysis reveals that the positive effect of ESG performance on financial flexibility is more pronounced in high-tech firms and non-heavily-polluted firms. (4) Sub-dimensional analysis shows that corporate governance has a more significant impact on financial flexibility enhancement than social responsibility, while environmental investment exerts an inhibitory effect on financial flexibility. (5) The uncertainty associated with ESG ratings weakens the contribution of ESG practices to the financial flexibility of manufacturing firms. Based on these findings, this paper suggests that enterprises should be encouraged to actively adopt ESG practices, accelerate the improvement of their ESG disclosure systems, and support firms with strong ESG performance to foster high-quality development.

Keywords: financial flexibility; ESG performance; financing constraints; competitive advantage; analyst attention; Chinese manufacturing industry (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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