IDEAS home Printed from https://ideas.repec.org/a/bla/ecopol/v37y2025i3p958-977.html
   My bibliography  Save this article

Navigating Economic Policy Uncertainty: The Role of ESG Performance in Mitigating the Risk of Nonfinancial Firms in China

Author

Listed:
  • Yinan Fan
  • Sajid Anwar
  • Rui Long

Abstract

Amid rising economic policy uncertainty (EPU) and escalating financial risks facing nonfinancial firms in China, this study investigates the impact of EPU on firm‐level risk exposure, with a particular focus on the moderating role of environmental, social, and governance(ESG) performance. Using panel data from nonfinancial firms listed on China's A‐share market between 2011 and 2020, the empirical analysis finds that higher levels of EPU significantly increase both systematic and idiosyncratic risks. Importantly, stronger ESG performance mitigates the positive relationship between EPU and firm risk, underscoring ESG as a strategic buffer in periods of heightened policy uncertainty and reflecting the broader interaction between corporate governance and China's political‐economic environment. Further analysis reveals heterogeneity in this moderating effect: ESG performance plays a more pronounced role in firms that are highly sensitive to policy changes or located in regions with higher levels of marketization. These findings remain robust across various model specifications and endogeneity checks, highlighting the strategic value of ESG in managing policy‐induced risks within China's evolving institutional landscape.

Suggested Citation

  • Yinan Fan & Sajid Anwar & Rui Long, 2025. "Navigating Economic Policy Uncertainty: The Role of ESG Performance in Mitigating the Risk of Nonfinancial Firms in China," Economics and Politics, Wiley Blackwell, vol. 37(3), pages 958-977, November.
    • Handle: RePEc:bla:ecopol:v:37:y:2025:i:3:p:958-977
    DOI: 10.1111/ecpo.12352
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecpo.12352
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecpo.12352?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecopol:v:37:y:2025:i:3:p:958-977. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.