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ESG and firms’ exploitative versus exploratory innovation: Evidence from a large language model approach

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  • Liu, Yeshen
  • Song, Kaixi
  • Xu, Longhui
  • Song, Zhe

Abstract

Grounded in expectancy violations theory (EVT), this study examines the impact of corporate Environmental, Social, and Governance (ESG) ratings on exploitative and exploratory innovation using a sample of Chinese A-share listed companies from 2009 to 2021. The findings indicate that ESG ratings promote firms’ exploitative innovation while constraining exploratory innovation. Furthermore, we construct a proxy for managerial ESG risks attention using a large language model (LLM) approach, providing empirical support for the theoretical mechanism of EVT. External stakeholder attention amplifies the positive effect of ESG ratings on exploitative innovation and the negative effect on exploratory innovation. Compared to Governance (G), the effects of Environmental (E) and Social (S) are more pronounced in promoting (suppressing) firms’ exploitative (exploratory) innovation. The heterogeneity analysis reveals that firms will place greater emphasis on balancing exploitative and exploratory innovation under conditions of resource abundance (e.g., high organizational slack, low financing constraints, state ownership, limited market competition, and high corporate reputation) and limited technological accumulation. Further analysis demonstrates that firms with higher ESG ratings benefit from exploitative innovation, which drives short- and medium-term performance growth. Overall, our research deepens the understanding of the complex relationship between ESG and corporate innovation.

Suggested Citation

  • Liu, Yeshen & Song, Kaixi & Xu, Longhui & Song, Zhe, 2026. "ESG and firms’ exploitative versus exploratory innovation: Evidence from a large language model approach," Research in International Business and Finance, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:riibaf:v:83:y:2026:i:c:s0275531926000322
    DOI: 10.1016/j.ribaf.2026.103305
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