IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v144y2025ics0140988325001604.html
   My bibliography  Save this article

How environmental regulation policies affect corporate ESG ratings: Latecomer advantage in China's digital economy

Author

Listed:
  • Song, Yinghao
  • Bian, Zhaian
  • Tu, Wei
  • He, Juan

Abstract

Corporate Environmental, Social, and Governance (ESG) factors are crucial for businesses to achieve long-term sustainable development, enhance competitiveness, and reduce risks. They play a significant role in meeting stakeholder expectations, enhancing brand reputation, attracting investment and talent, driving innovation and value creation, and fulfilling social and environmental responsibilities. Using panel data from Chinese listed companies between 2009 and 2021, this study utilizes the new environmental air quality standards (NEAQS) policy as a quasi-natural experiment to examine the impact of environmental regulatory policy on corporate ESG ratings in the context of the digital economy. This study finds that environmental regulation policies enhance corporate ESG ratings, with a latecomer advantage in the digital economy. Mechanism analysis indicates that promoting digital transformation, fostering green innovation, and increasing environmental costs are important mechanisms through which the NEAQS policy enhances corporate ESG ratings. Heterogeneity analysis shows that, in the context of digital economic development, companies with lower levels of digital transformation, asset intensity, and financing constraints have a latecomer advantage and can elevate corporate ESG ratings more effectively through digital transformation under environmental regulatory policies. This study provides new empirical evidence on the relationship between environmental regulatory policies and corporate ESG ratings and offers policy support for other countries seeking to enhance corporate social responsibility through environmental regulatory policies in the digital economy.

Suggested Citation

  • Song, Yinghao & Bian, Zhaian & Tu, Wei & He, Juan, 2025. "How environmental regulation policies affect corporate ESG ratings: Latecomer advantage in China's digital economy," Energy Economics, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:eneeco:v:144:y:2025:i:c:s0140988325001604
    DOI: 10.1016/j.eneco.2025.108336
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325001604
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.108336?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
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Bai, Caiquan & Liu, Hangjuan & Zhang, Rongjie & Feng, Chen, 2023. "Blessing or curse? Market-driven environmental regulation and enterprises' total factor productivity: Evidence from China's carbon market pilots," Energy Economics, Elsevier, vol. 117(C).
    2. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    3. Zhao, Xuezhou & Fang, Libing & Zhang, Ke, 2023. "Online search attention, firms’ ESG and operating performance," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 223-236.
    4. Shao, Xu, 2020. "Chinese OFDI responses to the B&R initiative: Evidence from a quasi-natural experiment," China Economic Review, Elsevier, vol. 61(C).
    5. Ma, Dan & Zhu, Qing, 2022. "Innovation in emerging economies: Research on the digital economy driving high-quality green development," Journal of Business Research, Elsevier, vol. 145(C), pages 801-813.
    6. Fang, Mingyue & Nie, Huihua & Shen, Xinyi, 2023. "Can enterprise digitization improve ESG performance?," Economic Modelling, Elsevier, vol. 118(C).
    7. Oren Mooneeapen & Subhash Abhayawansa & Naushad Mamode Khan, 2022. "The influence of the country governance environment on corporate environmental, social and governance (ESG) performance," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 13(4), pages 953-985, May.
    8. He, Yu & Zhao, Xiaoling & Zheng, Huan, 2023. "How does the environmental protection tax law affect firm ESG? Evidence from the Chinese stock markets," Energy Economics, Elsevier, vol. 127(PA).
    9. Shen, Yongchang & Fu, Yunyun & Song, Malin, 2023. "Does digital transformation make enterprises greener? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1642-1654.
    10. Yunpei Wang & Tao Wang & Qingnian Wang, 2024. "The impact of digital transformation on enterprise performance: An empirical analysis based on China’s manufacturing export enterprises," PLOS ONE, Public Library of Science, vol. 19(3), pages 1-23, March.
    11. Stephen P. Ryan, 2012. "The Costs of Environmental Regulation in a Concentrated Industry," Econometrica, Econometric Society, vol. 80(3), pages 1019-1061, May.
    12. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    13. Xiaowen Tian, 2017. "Learning breakdown in latecomer multinational enterprises," Asia Pacific Journal of Management, Springer, vol. 34(4), pages 823-850, December.
    14. Zhao, Xiaoxia & Cai, Lianghui, 2023. "Digital transformation and corporate ESG: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PA).
    15. Chen, Qi & Li, Menghan, 2024. "Environmental regulatory system reform and corporate ESG ratings: Evidence from China," Economic Modelling, Elsevier, vol. 135(C).
    16. Khalfaoui Hamdi & Hassan Guenich & Moufida Ben Saada, 2022. "Does corporate financial performance promote ESG: Evidence from US firms," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2154053-215, December.
    17. Weiping Shen & Yong Wang & Weijie Luo, 2021. "Does the Porter hypothesis hold in China? Evidence from the low-carbon city pilot policy," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 246-269, January.
    18. Liu, Prof Haiyue & Wang, Yile & Xue, Dr Rui & Linnenluecke, Prof Martina & Cai, Dr Cynthia Weiyi, 2022. "Green Commitment and Stock Prick Crash Risk," Finance Research Letters, Elsevier, vol. 47(PA).
    19. Aluchna, Maria & Roszkowska-Menkes, Maria & Kamiński, Bogumił & Bosek-Rak, Dominika, 2022. "Do institutional investors encourage firm to social disclosure? The stakeholder salience perspective," Journal of Business Research, Elsevier, vol. 142(C), pages 674-682.
    20. Oren Mooneeapen & Subhash Abhayawansa & Naushad Mamode Khan, 2022. "The influence of the country governance environment on corporate environmental, social and governance (ESG) performance," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 13(4), pages 953-985, May.
    21. Cao, Mingyao & Duan, Keyi & Ibrahim, Haslindar, 2023. "Green investments and their impact on ESG ratings: An evidence from China," Economics Letters, Elsevier, vol. 232(C).
    22. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    23. Yang, Shubo & Jahanger, Atif & Hossain, Mohammad Razib, 2023. "How effective has the low-carbon city pilot policy been as an environmental intervention in curbing pollution? Evidence from Chinese industrial enterprises," Energy Economics, Elsevier, vol. 118(C).
    24. Chunhua Chen & Dequan Jiang & Weiping Li, 2023. "Keeping up with the CSR Joneses: The impact of industry peers on focal firms’ CSR performance," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.
    25. Ailie K.Y. Tang & Kee‐hung Lai & T. C. E. Cheng, 2012. "Environmental Governance of Enterprises and their Economic Upshot through Corporate Reputation and Customer Satisfaction," Business Strategy and the Environment, Wiley Blackwell, vol. 21(6), pages 401-411, September.
    26. Bhandari, Avishek & Javakhadze, David, 2017. "Corporate social responsibility and capital allocation efficiency," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 354-377.
    27. Susanne Arvidsson & John Dumay, 2022. "Corporate ESG reporting quantity, quality and performance: Where to now for environmental policy and practice?," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 1091-1110, March.
    28. Tao Zhang & Zhan-Zhong Shi & Yi-Rong Shi & Neng-Jun Chen, 2022. "Enterprise digital transformation and production efficiency: mechanism analysis and empirical research," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 2781-2792, December.
    29. Michael E. Porter & Claas van der Linde, 1995. "Toward a New Conception of the Environment-Competitiveness Relationship," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 97-118, Fall.
    30. Lei, Ni & Miao, Qin & Yao, Xin, 2023. "Does the implementation of green credit policy improve the ESG performance of enterprises? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 127(C).
    31. Stewart R. Miller & Lorraine Eden & Dan Li, 2020. "CSR Reputation and Firm Performance: A Dynamic Approach," Journal of Business Ethics, Springer, vol. 163(3), pages 619-636, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiaoling Yuan & Wencai Wang & Zhaopeng Li, 2025. "Multi-Dimensional Heterogeneous Impacts of Air Pollution on Urban Sustainable Development of China," Sustainability, MDPI, vol. 17(13), pages 1-36, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Qi & Li, Menghan, 2024. "Environmental regulatory system reform and corporate ESG ratings: Evidence from China," Economic Modelling, Elsevier, vol. 135(C).
    2. Tian, Lichuan & Sun, Kai & Yang, Jie & Zhao, Yang, 2024. "Does digital economy affect corporate ESG performance? New insights from China," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 964-980.
    3. Jun, Xiao & Ai, Junwei & Zheng, Lingfeng & Lu, Meiting & Wang, Jianye, 2024. "Impact of information technology and industrial development on corporate ESG practices: Evidence from a pilot program in China," Economic Modelling, Elsevier, vol. 139(C).
    4. Fafaliou, Irene & Giaka, Maria & Konstantios, Dimitrios & Polemis, Michael, 2022. "Firms’ ESG reputational risk and market longevity: A firm-level analysis for the United States," Journal of Business Research, Elsevier, vol. 149(C), pages 161-177.
    5. Kara, Alper & Ongena, Steven & Yildiz, Yilmaz, 2024. "Does being a responsible bank pay off? Evidence from the COVID-19 pandemic," Journal of Financial Stability, Elsevier, vol. 74(C).
    6. Wang, Xiaolin & Ye, Yingying, 2024. "Environmental protection tax and firms’ ESG investment: Evidence from China," Economic Modelling, Elsevier, vol. 131(C).
    7. Liu, Xianda & Hou, Wenxuan & Main, Brian G.M., 2022. "Anti-market sentiment and corporate social responsibility: Evidence from anti-Jewish pogroms," Journal of Corporate Finance, Elsevier, vol. 76(C).
    8. Qiao, Penghua & Zhao, Yuying & Fung, Anna & Fung, Hung-Gay, 2025. "How digital leadership guides ESG sustainability," Research in International Business and Finance, Elsevier, vol. 73(PB).
    9. Xue, Qinyuan & Jin, Yifei & Zhang, Cheng, 2024. "ESG rating results and corporate total factor productivity," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    10. Yinghao Song & Zhaian Bian & Nianzhai Ma & Wei Tu, 2024. "How Does the Low-Carbon City Pilot Policy Affect Enterprises’ Green Innovation? Empirical Evidence from the Context of China’s Digital Economy Development," Sustainability, MDPI, vol. 16(5), pages 1-22, February.
    11. Fairhurst, Douglas (DJ) & Greene, Daniel T., 2022. "Too much of a good thing? Corporate social responsibility and the takeover market," Journal of Corporate Finance, Elsevier, vol. 73(C).
    12. Wang, Xiaoqiong & Zhu, Xiaoyang, 2025. "Fading virtue, flourishing profits: Corporate social responsibility in the presence of competitor constraints," Journal of Corporate Finance, Elsevier, vol. 91(C).
    13. Li, Junjun & Wu, Tong & Liu, Bailu & Zhou, Ming, 2024. "Can digital transformation enhance corporate ESG performance? The moderating role of dual environmental regulations," Finance Research Letters, Elsevier, vol. 62(PB).
    14. Huarng, Kun-Huang & Yu, Tiffany Hui-Kuang, 2024. "Causal complexity analysis of ESG performance," Journal of Business Research, Elsevier, vol. 170(C).
    15. Liu, Chelsea, 2018. "Are women greener? Corporate gender diversity and environmental violations," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 118-142.
    16. Sakkakom Maneenop & Chaiyuth Padungsaksawasdi & Sirimon Treepongkaruna, 2024. "Co‐opted board, environment, social and governance," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 1161-1172, February.
    17. Liu, Xiaoqian & Cifuentes-Faura, Javier & Zhao, Shikuan & Wang, Long, 2024. "The impact of government environmental attention on firms’ ESG performance: Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).
    18. Cai, Xiangshang & Gao, Ning & Garrett, Ian & Xu, Yan, 2020. "Are CEOs judged on their companies' social reputation?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    19. Zhu, Qin & Zhou, Xiangxiang, 2025. "Digital trade and firm ESG performance: The perspective of finance development," Research in International Business and Finance, Elsevier, vol. 77(PA).
    20. Dutordoir, Marie & Strong, Norman C. & Sun, Ping, 2018. "Corporate social responsibility and seasoned equity offerings," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 158-179.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

    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:eee:eneeco:v:144:y:2025:i:c:s0140988325001604. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    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.