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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
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