The Impact of ESG Performance on SG&A Cost Stickiness: Evidence from China-listed Company

In recent years, environmental, social and corporate governance (ESG) performance has received much attention from inside managers and outside investors. It is acknowledged that the degree of ESG has become an important way to improve firm value. We focus on the impact of ESG performance on firms' cost decisions. Our results find that firms with higher ESG performance tend to show lower cost stickiness. Meanwhile, the negative relationship between ESG performance and cost stickiness is particularly pronounced among small and young firms. That is, small firms are more flexible in adjusting their resources relative to large firms and can have higher ESG scores. Young firms also receive higher ESG scores than mature firms. We draw such conclusions through linear regression by selecting financial data of Chinese listed firms from 2015-2022. We believe our results reaffirm that SG&A cost stickiness implies high agency costs for firms, which reduces their earnings. In practical terms, we believe that firms should cut slack resources more promptly as sales decline when they wish to achieve higher ESG ratings.