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The externalities of inspection supervision: Evidence from corporate ESG performance in China

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  • Wu, Jiamei
  • Guo, Chong

Abstract

This paper investigates the influences of inspection supervision on corporate ESG performance. By analyzing the data of Chinese listed state-owned companies from 2009 to 2022, we find that the inspection supervision of the Communist Party of China generates significant positive externalities by aligning firms’ operations with sustainable development goals and enhancing their adherence to corporate ESG performance, which remains valid after executing a series of robustness tests. The channel analysis reveals that the positive relationship between inspection supervision and firms’ ESG performance is partially mediated by managerial myopia and corporate (rent-seeking) corruption. Meanwhile, the heterogeneity analysis shows that this promotion effect is particularly pronounced for firms not undergoing provincial inspections concurrently, without political connection, and with low information transparency. Additionally, the component-level analysis suggests that inspection supervision positively affects the governance pillar, while it does not affect the environmental and social pillars. This paper not only enriches the research on inspection supervision and corporate ESG performance but also paves the way for a new approach to the development of firms striving for sustainable growth.

Suggested Citation

  • Wu, Jiamei & Guo, Chong, 2025. "The externalities of inspection supervision: Evidence from corporate ESG performance in China," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 1577-1595.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:1577-1595
    DOI: 10.1016/j.eap.2025.10.042
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    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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