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Understanding resource deployment efficiency for ESG and financial performance: A DEA approach

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  • Cheng, Louis T.W.
  • Lee, Shu Kam
  • Li, Sung Ko
  • Tsang, Chun Kei

Abstract

COVID-19 has stimulated additional research interest on economic sustainability and ESG in both academia and industry. This study adopts a DEA approach to examine the efficiency of achieving ESG targets and their relationships with financial performance. Using MSCI ESG data from 2015 to 2019 on 1108 Chinese firms, we examine the ESG proportional and pillar mix efficiencies. The dominant strategies for our sampled firms are to improve overall ESG performance by enhancing the E and S pillars through sacrificing G’s performance. The second result shows a positive relationship between proportional efficiency and financial performance while a mixed relationship between pillar mix efficiency and financial performance. However, for the technology sector, there exists some trade-offs between ESG performance and financial performance. Specifically, relative to non-technology firms, improving proportional and pillar mix efficiencies for technology firms could result in some sacrifice in stock valuation.

Suggested Citation

  • Cheng, Louis T.W. & Lee, Shu Kam & Li, Sung Ko & Tsang, Chun Kei, 2023. "Understanding resource deployment efficiency for ESG and financial performance: A DEA approach," Research in International Business and Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000673
    DOI: 10.1016/j.ribaf.2023.101941
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    References listed on IDEAS

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    1. Chun-kei Tsang & Sung-ko Li, 2020. "Allocation of resources within subgroups of an industry: a case study in the Chinese industrial sector," Journal of Productivity Analysis, Springer, vol. 53(1), pages 125-139, February.
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    3. Broadstock, David C. & Chan, Kalok & Cheng, Louis T.W. & Wang, Xiaowei, 2021. "The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China," Finance Research Letters, Elsevier, vol. 38(C).
    4. Zheng, Jinghai & Liu, Xiaoxuan & Bigsten, Arne, 2003. "Efficiency, technical progress, and best practice in Chinese state enterprises (1980-1994)," Journal of Comparative Economics, Elsevier, vol. 31(1), pages 134-152, March.
    5. Rolf Färe & Xinju He & Sungko Li & Valentin Zelenyuk, 2019. "A Unifying Framework for Farrell Profit Efficiency Measurement," Operations Research, INFORMS, vol. 67(1), pages 183-197, January.
    6. Revelli, Christophe, 2017. "Socially responsible investing (SRI): From mainstream to margin?," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 711-717.
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    1. Yihe Lu & Yinyun Yu & Ting Qu, 2023. "An ESG Assessment Approach with Multi-Agent Preference Differences: Based on Fuzzy Reasoning and Group Decision-Making," Sustainability, MDPI, vol. 15(16), pages 1-17, August.

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