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ESG performance and capital market effectiveness – Evidence on stock liquidity in China

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  • Cao, NingNing
  • Zeng, QianNan

Abstract

As the corporate ESG performance is receiving increasing attention and emphasis from investors, it has gradually become an important means for enterprises to move towards high-quality development. Using data from Chinese listed enterprises between 2009 and 2021, this study empirically investigates the relationship between corporate ESG performance and stock liquidity, as well as the mechanisms driving this association. The results demonstrate that enhanced ESG performance significantly improves stock liquidity levels. Additionally, the influence of ESG performance on firms’ capital market outcomes varies significantly, with stronger effects observed among state-owned enterprises, larger firms, and those in the growth stage. Finally, ESG performance can improve stock liquidity by reducing agency costs, information imbalance, and corporate risks. The findings of this research offer illuminating insights to propel corporate sustainability and revitalize the capital markets.

Suggested Citation

  • Cao, NingNing & Zeng, QianNan, 2025. "ESG performance and capital market effectiveness – Evidence on stock liquidity in China," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 720-733.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:720-733
    DOI: 10.1016/j.eap.2025.08.038
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