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Digital economy and corporate ESG performance: Cost reduction or efficiency improvement?

Author

Listed:
  • Liu, Yuanyang
  • Tian, Xuemei
  • Long, Yang

Abstract

This study uses panel data from 27,698 Chinese firm-year observations (2010–2022) to examine how digital economy development influences corporate environmental, social, and governance (ESG) performance. Through econometric analysis, we find that digital advancement significantly enhances ESG outcomes through direct and indirect mechanisms, namely, reducing agency costs and improving financing efficiency. The impact varies significantly across ownership structures and industrial groups, with stronger effects in nonstate-owned enterprises and nonheavily polluting sectors. These findings remain robust to instrumental variables, propensity score matching, and Heckman correction procedures. The study provides theoretical insights into how digital transformation influences corporate sustainability and practical implications for policy development.

Suggested Citation

  • Liu, Yuanyang & Tian, Xuemei & Long, Yang, 2025. "Digital economy and corporate ESG performance: Cost reduction or efficiency improvement?," Finance Research Letters, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325003083
    DOI: 10.1016/j.frl.2025.107044
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    More about this item

    Keywords

    Digital economy; ESG performance; Agency cost; Financing efficiency; Corporate sustainability;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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