The Moderating Effect of ROA on the Relationship between ESG and Firm Value: Evidence from China

This paper investigates the relationship between environmental, social, and governance (ESG) performance and firm value in China, focusing on the moderating effect of return on assets (ROA) as a proxy for financial performance. Analyzing data from listed companies in China’s A-share market spanning 2018 to 2020, we first find that ESG performance is positively associated with firm value. Secondly, we show that this positive association is more pronounced for firms with strong financial performance, suggesting that the market might place less emphasis on ESG performance if financial performance remains subpar. Lastly, our study reveals that the moderating effect of the relationship between ESG performance and firm value is less pronounced for state-owned enterprises (SOEs) than non-SOEs. This phenomenon stems from the perception that SOEs possess greater stability due to government support. Our study highlights the need for firms to balance ESG performance with financial performance.