The impacts of ESG on business performance and firm value in Chinese firms

ESG is an imperative factor to evaluate the sustainable development of enterprises. However, the impact of ESG on business performance and firm value in Chinese enterprises remains elusive. Based on the panel data of listed Chinese enterprises for 8 years from 2015 to 2022, fixed effects model was employed to analyze the impact of ESG on business performance and firm value, whose proxy parameter is return on assets (ROA) and Tobin’s Q ratio (TQ), respectively in Shanghai and Shenzhen markets. The results showed in the short-term window that ESG had both positive and negative impacts on cumulative abnormal return (CAR). However, ESG had negative impacts on CAR in the long-term window. In Shanghai market, ESG had no effect on ROA and TQ. Environmental factors had a negative impact on TQ in Shenzhen market. Social responsibility had a positive impact on ROA. In addition, corporate governance had a positive effect on both ROA and TQ. Further analysis revealed that social responsibility had a positive impact on the ROA of manufacturing industries in Shanghai market. Corporate governance had a positive impact on the ROA of non-state-owned enterprises. In Shenzhen market, environmental factors had a negative impact on ROA and TQ of manufacturing enterprises. Environmental factors also had a negative effect on the TQ of non-state enterprises and small enterprises. Social responsibility had a positive impact on ROA of manufacturing industries, state-owned enterprises, non-state-owned enterprises and small enterprises. Corporate governance positively affected the ROA of manufacturing and non-manufacturing industries, the ROA and TQ of non-state-owned enterprises and large enterprises, and the ROA of small enterprises. In conclusion, this study reveals the differential effects of ESG in different situations, and thus providing practical reference for enterprises and policy makers who aim to promote sustainable development.