The Effect of ESG on Firms’ Product Market Performance and Supply Chain Spillover Effects

In product manufacturing and operations, firms increasingly treat Environmental, Social, and Governance (ESG) ratings as strategically important. This differs from earlier views that framed ESG mainly as a burden, whereas recent studies suggest that ESG can enhance firm value. Using panel data on Chinese A-share listed firms over 2009–2022, this study examines whether ESG ratings affect product-market performance. A two-way fixed-effects model shows that better ESG ratings significantly increase market share, mainly by signaling stronger product quality and service capability. While findings from this emerging market context may have limited generalizability, results consistently show that ESG performance bolsters competitiveness, particularly in high-tech and consumer-facing sectors. Moreover, improvements in ESG ratings are positively associated with net market-share growth. The benefits extend beyond the focal firm and generate positive spillovers for downstream customers. The three ESG dimensions do not contribute equally: the Environmental (E) and Governance (G) dimensions exert stronger effects on product-market performance than the Social (S) dimension. This study provides a new perspective on understanding the value creation mechanism of ESG investment.