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Does ESG performance promote new quality productivity forces for firms? Evidence from China

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  • Sun, Yiwan
  • Jiao, Haoxuan
  • Sheng, Dachen

Abstract

This study investigates the influence and mechanisms of environment, society and governance (ESG) performance on firms' high-quality development by introducing new quality productivity forces (NQPF), a novel measure that is superior to traditional total factor productivity (TFP). We employ the entropy method to estimate NQPF and reconfirm our findings using principal component analysis (PCA). The evidence demonstrates that ESG performance significantly encourages firms' investment in research and development (R&D), decreases intermediate product costs (IPCs), and increases institutional shareholding ratios (ISRs), collectively driving notable improvements in NQPF. Further analysis reveals that the positive impact of ESG performance on NQPF decreases returns. ESG performance is particularly pronounced in firms that have lower transparency, smaller size, and nonstate ownership. This diminishing return suggests that policy-makers should provide greater support for firms continuously targeting higher ESG standards to balance the smaller marginal gains accrued from ESG investment.

Suggested Citation

  • Sun, Yiwan & Jiao, Haoxuan & Sheng, Dachen, 2025. "Does ESG performance promote new quality productivity forces for firms? Evidence from China," Finance Research Letters, Elsevier, vol. 86(PD).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pd:s1544612325019014
    DOI: 10.1016/j.frl.2025.108647
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