IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v86y2025ipes1544612325019282.html

Impact of ESG performance and digital transformation on financing constraints in the Chinese capital market

Author

Listed:
  • Zhang, Liangcai
  • Huang, Liping
  • Zhang, Chang
  • Zhang, Liangren

Abstract

This study comprehensively assesses how environmental, social, and governance (ESG) performance affects financing constraints (FCs) using panel data of Chinese A-share listed companies from 2011 to 2023. It examines the moderating role of digital transformation in the Chinese capital market to help stakeholders fine-tune their working strategies. Notably, digital transformation significantly enhances the mitigating effect of ESG performance on FCs. Among its three pillars, environmental issues exacerbate FCs, whereas social and governance issues mitigate them. Furthermore, the mitigating effect of ESG performance is enhanced for state-owned enterprises, manufacturing firms, and nonhighly polluting enterprises. These findings indicate that firms should strategically manage their environmental costs to reduce potential financing pressures. Policymakers should encourage digital transformation to enhance the impact of ESG practices, while investors should emphasize the social and governance aspects.

Suggested Citation

  • Zhang, Liangcai & Huang, Liping & Zhang, Chang & Zhang, Liangren, 2025. "Impact of ESG performance and digital transformation on financing constraints in the Chinese capital market," Finance Research Letters, Elsevier, vol. 86(PE).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pe:s1544612325019282
    DOI: 10.1016/j.frl.2025.108674
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325019282
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.108674?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. Lanlin Fang & Xuemeng Guo, 2025. "From responsibility to value: ESG and long-term corporate value," PLOS ONE, Public Library of Science, vol. 20(4), pages 1-22, April.
    2. Cheng, Yuhao & He, Chuqian & Tang, Can, 2025. "The impact of ESG performance on corporate debt costs: A signaling perspective," Finance Research Letters, Elsevier, vol. 76(C).
    3. He, Yin & Li, Jianzhong & Ren, Yuheng, 2024. "Digital transformation and corporate ESG information disclosure herd effect," Finance Research Letters, Elsevier, vol. 65(C).
    4. Xiaoyan Sun & Yuanyuan Shao & Jie Han, 2025. "ESG Performance Drives Enterprise High-Quality Development Through Financing Constraints: Based on the Background of China’s Digital Transformation," Sustainability, MDPI, vol. 17(13), pages 1-19, July.
    5. Zhou, Jiezheng & Liu, Xuexin & Wang, Zhe, 2025. "Tax neutrality and digital transformation of private enterprises: From the perspective of human capital structure adjustment," International Review of Financial Analysis, Elsevier, vol. 103(C).
    6. Kunming Li & Linxing Huang & Jinshan Zhang & Zhencheng Huang & Liting Fang, 2023. "Can ESG Performance Alleviate the Constraints of Green Financing for Chinese Enterprises: Empirical Evidence from China’s A-Share Manufacturing Companies," Sustainability, MDPI, vol. 15(14), pages 1-24, July.
    7. Liu, Yang & Dong, Kangyin & Nepal, Rabindra & Afi, Hatem, 2025. "How do climate risks affect corporate ESG performance? Micro evidence from China," Research in International Business and Finance, Elsevier, vol. 76(C).
    8. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    9. Deng, Guoying & Fu, Xu & Zou, Jin & Yan, Jingzhou, 2025. "Enterprise digitalization and bank-enterprise ESG consistency: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 103(C).
    10. Yu-Jin Chang & Byung-Hee Lee, 2022. "The Impact of ESG Activities on Firm Value: Multi-Level Analysis of Industrial Characteristics," Sustainability, MDPI, vol. 14(21), pages 1-17, November.
    11. Bi, Sifeng & Wei, Na & Du, Anna Min & Zhou, Tiran, 2025. "Mitigating financing constraints under economic uncertainty: The role of implicit government guarantees in China," Research in International Business and Finance, Elsevier, vol. 76(C).
    12. Lin Wu & Miao Wang & Ajay Kumar & Tsan-Ming Choi, 2024. "Mitigating the bullwhip effect through supply chain ESG transparency: roles of digitalization and signal strength," Post-Print hal-05531902, HAL.
    13. Jiang, Weijie & Li, Jiaye, 2024. "Digital transformation and its effect on resource allocation efficiency and productivity in Chinese corporations," Technology in Society, Elsevier, vol. 78(C).
    14. Xiao Yao & Xianjun Bao, 2024. "Corporate Environmental Protection Investment and Debt Financing Costs: Evidence from China," Sustainability, MDPI, vol. 16(23), pages 1-26, December.
    15. Ling Huang & AL-Barakani Abdo & Nadeem Aljonaid, 2025. "Digital Transformation and Carbon Reduction in Chinese Industrial Enterprises: Mediating Role of Green Innovation and Moderating Effects of ESG Practices," Sustainability, MDPI, vol. 17(9), pages 1-25, April.
    16. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
    17. Xiong, Wenjing & Liu, Wenhua & Wen, Fenghua, 2025. "Digital finance and corporate credit rent-seeking: The role of financing constraints and bank competition," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    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. Bobur Nasriddinov & Wang Guosong & Sinbad Kurbonov & Batirbek Artikbaev, 2026. "Linking ESG Performance to Corporate Value in China’s Equity Market," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 10(15), pages 416-428, January.
    2. Zhang, Xiaowei & Liu, Jiayin & Wang, Fan, 2026. "Impact of China’s climate-resilient city pilot policy on enterprises’ green technological innovation," Finance Research Letters, Elsevier, vol. 92(C).

    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. Croce, M.M. & Nguyen, Thien T. & Raymond, S. & Schmid, L., 2019. "Government debt and the returns to innovation," Journal of Financial Economics, Elsevier, vol. 132(3), pages 205-225.
    2. Yuan, Li & Rao, Siqi & Yang, Shenggang & Dai, Pengyi, 2023. "Does equity market openness increase productivity? the dual effects of Shanghai-Hong Kong stock Connect program in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    3. Robin Döttling & Tomislav Ladika & Enrico Perotti, 2016. "The (Self-)Funding of Intangibles," Tinbergen Institute Discussion Papers 16-093/IV, Tinbergen Institute.
    4. Falavigna, Greta & Ippoliti, Roberto, 2023. "SMEs’ behavior under financial constraints: An empirical investigation on the legal environment and the substitution effect with tax arrears," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    5. Ruixin Su & Tong Zheng & Yuzhao Zhong & Weizhou Zhong, 2023. "Role of Digital Inclusive Finance for High-Quality Business Development: A Study of China’s “Five Development Concept” Policy," Sustainability, MDPI, vol. 15(15), pages 1-21, August.
    6. Anabela Santos & Michele Cincera, 2022. "Determinants of financing constraints," Small Business Economics, Springer, vol. 58(3), pages 1427-1439, March.
    7. Ke, Dun-Yao & Su, Xuan-Qi, 2024. "How Do Elite-Educated CEOs Choose the M&A Payment Method? Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    8. Bijnens, Gert & Hutchinson, John & Saint Guilhem, Arthur, 2026. "Navigating the carbon price shock: Electricity costs and employment reallocation in Europe," Utilities Policy, Elsevier, vol. 99(C).
    9. Keming Li, 2021. "The effect of option trading," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-32, December.
    10. Tse-Chun Lin & Qi Liu & Bo Sun, 2015. "Contracting with Feedback," International Finance Discussion Papers 1143, Board of Governors of the Federal Reserve System (U.S.).
    11. Tudi, Tayier & Deng, Xinghua & Chen, Lingqing & Ni, Mingjie, 2025. "Unraveling the nexus between emissions trading and corporate carbon outsourcing: Evidence from a quasi-natural experiment in China," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 1612-1632.
    12. Iftekhar Hasan & Haekwon Lee & Buhui Qiu & Anthony Saunders, 2026. "Climate-related disclosure commitment of the lenders, credit rationing, and borrower environmental performance," Review of Accounting Studies, Springer, vol. 31(1), pages 74-117, March.
    13. Dang, Viet Anh & Kim, Minjoo & Shin, Yongcheol, 2014. "Asymmetric adjustment toward optimal capital structure: Evidence from a crisis," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 226-242.
    14. Wei, Xin & Liu, Xi & Zhang, Xueyong, 2022. "Shadow banking and the cross-section of stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    15. Li, Chengming & Wang, Yilin & Zhou, Zhihan & Wang, Zeyu & Mardani, Abbas, 2023. "Digital finance and enterprise financing constraints: Structural characteristics and mechanism identification," Journal of Business Research, Elsevier, vol. 165(C).
    16. Chia-Ying Chan & Iftekhar Hasan & Chih-Yung Lin, 2021. "Agency cost of CEO perquisites in bank loan contracts," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1221-1258, May.
    17. Joye Khoo & Adrian (Wai Kong) Cheung, 2023. "Does skilled labor risk matter to suppliers? Evidence from trade credit," The Financial Review, Eastern Finance Association, vol. 58(2), pages 423-447, May.
    18. Gabriele Angori & David Aristei, 2020. "Heterogeneity and state dependence in firms’ access to credit: Microevidence from the euro area," SEEDS Working Papers 0220, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Feb 2020.
    19. Pu Liu & Yingying Shao, 2022. "Innovation and new business formation: the role of innovative large firms," Small Business Economics, Springer, vol. 59(2), pages 691-720, August.
    20. Lou, Zhaohui & Xie, Qizhuo & Shen, Jim Huangnan & Lee, Chien-Chiang, 2024. "Does Supply Chain Finance (SCF) alleviate funding constraints of SMEs? Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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:finlet:v:86:y:2025:i:pe:s1544612325019282. 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/frl .

    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.