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Research on the impact of environment, society, and governance (ESG) on firm risk: An explanation from a financing constraints perspective

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  • He, Guosheng
  • Liu, Yiting
  • Chen, Fu

Abstract

With the concept of sustainable development becoming a consensus in social development, external factors such as environment, society, and governance (ESG) are gradually attracting the attention of enterprises and their stakeholders. Firm risk is crucial for the survival and development of enterprises, but few studies have focused on the impact of ESG performance on firm risk. Therefore, based on quarterly data of 1587 A-share listed companies in China from 2018 to 2022, this study empirically discusses the impact of ESG performance on firm risk by integrating various methods. The results indicate that positive ESG performance can significantly reduce firm risk. Further analysis indicates that positive ESG performance is beneficial for alleviating firm financing constraints and thereby reducing firm risk. Meanwhile, the inhibitory effect of ESG performance on firm risk may exhibit heterogeneity due to differences in firm size and ownership. Studying the impact of ESG performance on firm risk from the perspective of financing constraints provides new evidence for a deeper understanding of the value of ESG performance, and also provides a new and effective approach for risk management in enterprises.

Suggested Citation

  • He, Guosheng & Liu, Yiting & Chen, Fu, 2023. "Research on the impact of environment, society, and governance (ESG) on firm risk: An explanation from a financing constraints perspective," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323004105
    DOI: 10.1016/j.frl.2023.104038
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Dongyang & Meng, Li & Zhang, Jintao, 2023. "Environmental subsidy disruption, skill premiums and ESG performance," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Wu, Meng-Wen & Shen, Chung-Hua & Hsu, Hsing-Hua & Chiu, Po-Hao, 2023. "Why did a bank with good governance perform worse during the financial crisis? The views of shareholder and stakeholder orientations," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    3. Piotr M. Bolibok, 2024. "Does Firm Size Matter for ESG Risk? Cross-Sectional Evidence from the Banking Industry," Sustainability, MDPI, vol. 16(2), pages 1-26, January.
    4. Lin, Xudong & Zhu, Hao & Meng, Yiqun, 2023. "ESG greenwashing and equity mispricing: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).
    5. Tan, Xiujie & Liu, Gufeng & Cheng, Si, 2024. "How does ESG performance affect green transformation of resource-based enterprises: Evidence from Chinese listed enterprises," Resources Policy, Elsevier, vol. 89(C).
    6. Li, Li & Zhang, Du & Li, Rongrong, 2024. "ESG rating disagreement and corporate innovation: Evidence from China," Finance Research Letters, Elsevier, vol. 62(PA).

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