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From activism to efficiency: Does ESG shareholder engagement mitigate credit misallocation?

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  • Tudi, Tayier
  • Ni, Mingjie

Abstract

This study investigates whether and how ESG shareholder engagement enhances the efficiency of corporate credit allocation in China. Using panel data on non-financial listed firms from 2008 to 2022, we find that greater equity ownership by ESG mutual funds significantly mitigates corporate credit misallocation. Guided by information asymmetry and agency theories, the results indicate that ESG investors improve credit allocation efficiency by easing financing constraints and enhancing investment efficiency. The effects are more pronounced in firms with stronger internal governance and higher transparency, but weaker in those facing severe information frictions. Overall, the evidence underscores that ESG-driven external governance complements internal control mechanisms and contributes to more efficient capital allocation. Strengthening ESG investment and disclosure practices can therefore foster financial efficiency and promote sustainable economic growth in emerging markets.

Suggested Citation

  • Tudi, Tayier & Ni, Mingjie, 2026. "From activism to efficiency: Does ESG shareholder engagement mitigate credit misallocation?," Economic Modelling, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:ecmode:v:155:y:2026:i:c:s0264999325004316
    DOI: 10.1016/j.econmod.2025.107436
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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