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The impact of ESG performance on R&D investment stability: Evidence from China

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  • Chen, Che
  • Chen, Song
  • Wu, Dingwen

Abstract

This study investigates how Environmental, Social, and Governance (ESG) performance influences corporate R&D stability. Based on Chinese A-share listed firms, we find that ESG performance mitigates the effect of market shocks on R&D activities, particularly during negative market conditions. This effect stems from ESG performance enhancing the external financing environment, thereby reducing R&D investment's reliance on internal financing, which primarily comes from sales revenue. Cross-sectional analysis show that the impact of ESG on R&D investment stability is more pronounced in firms with higher corporate governance and lower external financing availability. Additionally, the improvement in R&D stability is particularly evident in non-SOEs, high-tech enterprises, and pollution enterprises. This paper provides insights into the innovation risk management of ESG practices.

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  • Chen, Che & Chen, Song & Wu, Dingwen, 2025. "The impact of ESG performance on R&D investment stability: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:reveco:v:99:y:2025:i:c:s1059056025002096
    DOI: 10.1016/j.iref.2025.104046
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