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The dynamics of peer influence in corporate ESG practices

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  • Gao, Yang
  • Liu, Siqiang
  • Yang, Lu

Abstract

This study explores the influence of peer effects on corporate environmental, social, and governance (ESG) performance, focusing its overall construct, underlying mechanisms, and economic consequences. Using data from A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2011 to 2022, the analysis reveals significant industry-level peer effects, demonstrating that competitors play a crucial role in shaping firms' ESG practices. The study identifies two primary mechanisms driving these effects: social learning and market competition. Follower firms tend to emulate the ESG practices of industry leaders, whereas competitive market dynamics further amplify this behavior. Additionally, the study highlights the heterogeneity of peer effects, which vary based on firm age, institutional long-term investment holdings, and the marketization index. Although peer effects can mitigate short-term information asymmetry, they often negatively impact long-term market value, particularly for firms lagging in ESG performance. These findings offer practical insights for firms seeking to develop sustainable and customized ESG strategies and provide policymakers with guidance for strengthening regulatory frameworks to promote long-term ESG value creation.

Suggested Citation

  • Gao, Yang & Liu, Siqiang & Yang, Lu, 2025. "The dynamics of peer influence in corporate ESG practices," International Review of Financial Analysis, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:finana:v:103:y:2025:i:c:s105752192500273x
    DOI: 10.1016/j.irfa.2025.104186
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