IDEAS home Printed from https://ideas.repec.org/a/spr/jknowl/v16y2025i2d10.1007_s13132-024-02303-2.html
   My bibliography  Save this article

ESG Ratings as a Strategic Imperative: Unraveling Their Influence on Corporate Financial Performance in China

Author

Listed:
  • Wei Jiang

    (Qingdao University)

  • Xin Wang

    (Qingdao University)

  • Liping Liang

    (Lingnan University)

  • Mingming Leng

    (Lingnan University)

  • Xin Fang

    (Macau University of Science and Technology)

Abstract

Recent years have witnessed a growing interest in understanding the impact of environmental, social, and governance (ESG) factors on corporate financial performance. However, the findings are mixed regarding the holistic impact of ESG in the context of Chinese companies. Using the ESG ratings data of SynTao Green Finance from 2010 to 2020, we investigate how a company’s aggregate ESG score affects its financial performance, using a staggered difference-in-differences model. We find that (1) the overall ESG ratings of Chinese companies positively impact their financial performance; (2) the positive effects are achieved through alleviating agency problems, increasing R&D investment, and improving total factor productivity; (3) the effect is stronger in heavily polluting industries and state-owned enterprises; and (4) the larger a company, the more significant the influence of its ESG ratings on its financial performance. Our findings imply that companies should actively promote ESG practices through green production, active participation in social welfare-enhancing activities, and improved corporate governance systems. Moreover, the Chinese government should strongly support ESG practices, improve the ESG information disclosure system, and establish an incentive mechanism for companies’ ESG practices.

Suggested Citation

  • Wei Jiang & Xin Wang & Liping Liang & Mingming Leng & Xin Fang, 2025. "ESG Ratings as a Strategic Imperative: Unraveling Their Influence on Corporate Financial Performance in China," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(2), pages 9313-9337, June.
    • Handle: RePEc:spr:jknowl:v:16:y:2025:i:2:d:10.1007_s13132-024-02303-2
    DOI: 10.1007/s13132-024-02303-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13132-024-02303-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13132-024-02303-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Fatemi, Ali & Glaum, Martin & Kaiser, Stefanie, 2018. "ESG performance and firm value: The moderating role of disclosure," Global Finance Journal, Elsevier, vol. 38(C), pages 45-64.
    2. Hao Liang & Luc Renneboog, 2017. "On the Foundations of Corporate Social Responsibility," Journal of Finance, American Finance Association, vol. 72(2), pages 853-910, April.
    3. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    4. Eduardo Duque-Grisales & Javier Aguilera-Caracuel, 2021. "Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack," Journal of Business Ethics, Springer, vol. 168(2), pages 315-334, January.
    5. Hezun Li & Timurs Uman & Siri Terjesen, 2019. "Corporate governance and innovation," Chapters, in: David B. Audretsch & Erik E. Lehmann & Albert N. Link (ed.), A Research Agenda for Entrepreneurship and Innovation, chapter 9, pages 134-154, Edward Elgar Publishing.
    6. Manuel Branco & Lúcia Rodrigues, 2006. "Corporate Social Responsibility and Resource-Based Perspectives," Journal of Business Ethics, Springer, vol. 69(2), pages 111-132, December.
    7. Jeremy C. Stein, 1989. "Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 655-669.
    8. Hua Tang, 2022. "The Effect of ESG Performance on Corporate Innovation in China: The Mediating Role of Financial Constraints and Agency Cost," Sustainability, MDPI, vol. 14(7), pages 1-21, March.
    9. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.
    10. Wang, Juxian & Ma, Mengdi & Dong, Tianyi & Zhang, Zheyuan, 2023. "Do ESG ratings promote corporate green innovation? A quasi-natural experiment based on SynTao Green Finance's ESG ratings," International Review of Financial Analysis, Elsevier, vol. 87(C).
    11. Shengjun Zhu & Canfei He & Yi Zhou, 2017. "How to jump further and catch up? Path-breaking in an uneven industry space," Journal of Economic Geography, Oxford University Press, vol. 17(3), pages 521-545.
    12. Changhong Zhao & Yu Guo & Jiahai Yuan & Mengya Wu & Daiyu Li & Yiou Zhou & Jiangang Kang, 2018. "ESG and Corporate Financial Performance: Empirical Evidence from China’s Listed Power Generation Companies," Sustainability, MDPI, vol. 10(8), pages 1-18, July.
    13. Deng, Xin & Kang, Jun-koo & Low, Buen Sin, 2013. "Corporate social responsibility and stakeholder value maximization: Evidence from mergers," Journal of Financial Economics, Elsevier, vol. 110(1), pages 87-109.
    14. Caroline Flammer, 2015. "Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach," Management Science, INFORMS, vol. 61(11), pages 2549-2568, November.
    15. Ting Li & Xinlei Zhao & Aiwu Zhao, 2019. "Voting with hands, earnings management and corporate governance," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 18(2), pages 178-197, May.
    16. Beat Reber & Agnes Gold & Stefan Gold, 2022. "ESG Disclosure and Idiosyncratic Risk in Initial Public Offerings," Journal of Business Ethics, Springer, vol. 179(3), pages 867-886, September.
    17. Won‐Moo Hur & Hanna Kim & Hyun Kyung Kim, 2018. "Does customer engagement in corporate social responsibility initiatives lead to customer citizenship behaviour? The mediating roles of customer‐company identification and affective commitment," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(6), pages 1258-1269, November.
    18. Eliana La Ferrara & Alberto Chong & Suzanne Duryea, 2012. "Soap Operas and Fertility: Evidence from Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 1-31, October.
    19. Abdur Rouf & M. Akhtaruddin, 2019. "Corporate governance reporting in Bangladesh," International Journal of Ethics and Systems, Emerald Group Publishing Limited, vol. 36(1), pages 42-57, October.
    20. Lars Hassel & Henrik Nilsson & Siv Nyquist, 2005. "The value relevance of environmental performance," European Accounting Review, Taylor & Francis Journals, vol. 14(1), pages 41-61.
    21. Stephen Brammer & Chris Brooks & Stephen Pavelin, 2006. "Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures," Financial Management, Financial Management Association International, vol. 35(3), pages 97-116, September.
    22. Deng, Xiang & Li, Weihao & Ren, Xiaohang, 2023. "More sustainable, more productive: Evidence from ESG ratings and total factor productivity among listed Chinese firms," Finance Research Letters, Elsevier, vol. 51(C).
    23. Charles I. Jones & John C. Williams, 1998. "Measuring the Social Return to R&D," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1119-1135.
    24. James Kroes & Ravi Subramanian & Ramanath Subramanyam, 2012. "Operational Compliance Levers, Environmental Performance, and Firm Performance Under Cap and Trade Regulation," Manufacturing & Service Operations Management, INFORMS, vol. 14(2), pages 186-201, April.
    25. Karl V. Lins & Henri Servaes & Ane Tamayo, 2017. "Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis," Journal of Finance, American Finance Association, vol. 72(4), pages 1785-1824, August.
    26. Pedersen, Lasse Heje & Fitzgibbons, Shaun & Pomorski, Lukasz, 2021. "Responsible investing: The ESG-efficient frontier," Journal of Financial Economics, Elsevier, vol. 142(2), pages 572-597.
    27. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    28. Ting Li & Xinlei Zhao & Aiwu Zhao, 2019. "Voting with hands, earnings management and corporate governance," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 18(2), pages 178-197, May.
    29. Guangyou Zhou & Lian Liu & Sumei Luo, 2022. "Sustainable development, ESG performance and company market value: Mediating effect of financial performance," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 3371-3387, November.
    30. Tricker, Bob & Li, Gregg, 2019. "Understanding Corporate Governance in China," University of Chicago Press Economics Books, University of Chicago Press, number 9789888455713.
    31. Mohammed Benlemlih & Mohammad Bitar, 2018. "Corporate Social Responsibility and Investment Efficiency," Journal of Business Ethics, Springer, vol. 148(3), pages 647-671, March.
    32. Daniel Ferreira & Jin Li & Radoslawa Nikolowa, 2019. "Corporate Capture of Blockchain Governance," Working Papers 880, Queen Mary University of London, School of Economics and Finance.
    33. Ho, Simon S.M. & Li, Annie Yuansha & Tam, Kinsun & Tong, Jamie Y., 2016. "Ethical image, corporate social responsibility, and R&D valuation," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 335-348.
    34. Khalfaoui Hamdi & Hassan Guenich & Moufida Ben Saada, 2022. "Does corporate financial performance promote ESG: Evidence from US firms," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2154053-215, December.
    35. Linthicum, Cheryl & Reitenga, Austin L. & Sanchez, Juan Manuel, 2010. "Social responsibility and corporate reputation: The case of the Arthur Andersen Enron audit failure," Journal of Accounting and Public Policy, Elsevier, vol. 29(2), pages 160-176, March.
    36. Xueming Luo & Shuili Du, 2015. "Exploring the relationship between corporate social responsibility and firm innovation," Marketing Letters, Springer, vol. 26(4), pages 703-714, December.
    37. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    38. Lin, Lili, 2019. "Corporate Governance and Liquidity Risk of Starbucks Company," MPRA Paper 97230, University Library of Munich, Germany, revised 18 Nov 2019.
    39. Guochao Wan & Ahmad Yahya Dawod, 2022. "ESG Rating and Northbound Capital Shareholding Preferences: Evidence from China," Sustainability, MDPI, vol. 14(15), pages 1-19, July.
    40. Wong, Jin Boon & Zhang, Qin, 2022. "Stock market reactions to adverse ESG disclosure via media channels," The British Accounting Review, Elsevier, vol. 54(1).
    41. Xiaoyuan Hu & Danmo Lin & Onur Kemal Tosun, 2023. "The effect of board independence on firm performance – new evidence from product market conditions," The European Journal of Finance, Taylor & Francis Journals, vol. 29(4), pages 363-392, March.
    42. Mohammed Benlemlih & Mohammad Bitar, 2018. "Corporate Social Responsibility and Investment Efficiency," Post-Print halshs-01321227, HAL.
    43. Amal Aouadi & Sylvain Marsat, 2018. "Do ESG Controversies Matter for Firm Value? Evidence from International Data," Post-Print halshs-02007374, HAL.
    44. Jeremy Galbreath, 2013. "ESG in Focus: The Australian Evidence," Journal of Business Ethics, Springer, vol. 118(3), pages 529-541, December.
    45. Amal Aouadi & Sylvain Marsat, 2018. "Do ESG Controversies Matter for Firm Value? Evidence from International Data," Journal of Business Ethics, Springer, vol. 151(4), pages 1027-1047, September.
    46. He, Jie (Jack) & Tian, Xuan, 2013. "The dark side of analyst coverage: The case of innovation," Journal of Financial Economics, Elsevier, vol. 109(3), pages 856-878.
    47. Shakil, Mohammad Hassan, 2021. "Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity," Resources Policy, Elsevier, vol. 72(C).
    48. Vivian W. Fang & Xuan Tian & Sheri Tice, 2014. "Does Stock Liquidity Enhance or Impede Firm Innovation?," Journal of Finance, American Finance Association, vol. 69(5), pages 2085-2125, October.
    49. Goss, Allen & Roberts, Gordon S., 2011. "The impact of corporate social responsibility on the cost of bank loans," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1794-1810, July.
    50. Hamamoto, Mitsutsugu, 2006. "Environmental regulation and the productivity of Japanese manufacturing industries," Resource and Energy Economics, Elsevier, vol. 28(4), pages 299-312, November.
    51. Caroline Flammer, 2015. "Does product market competition foster corporate social responsibility? Evidence from trade liberalization," Strategic Management Journal, Wiley Blackwell, vol. 36(10), pages 1469-1485, October.
    52. Olofsson, Petter & Råholm, Anna & Uddin, Gazi Salah & Troster, Victor & Kang, Sang Hoon, 2021. "Ethical and unethical investments under extreme market conditions," International Review of Financial Analysis, Elsevier, vol. 78(C).
    53. Clarkson, Peter M. & Li, Yue & Richardson, Gordon D. & Vasvari, Florin P., 2008. "Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis," Accounting, Organizations and Society, Elsevier, vol. 33(4-5), pages 303-327.
    54. repec:eme:ijoes0:ijoes-02-2019-0035 is not listed on IDEAS
    55. Jayasuriya Mahapatabendige Ruwani Fernando & Leon Li & Yang (Greg) Hou, 2019. "Corporate governance and default prediction: a reality test," Applied Economics, Taylor & Francis Journals, vol. 51(24), pages 2669-2686, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Qi Gong & Jiahui Gu & Zhaoyang Kong & Siyan Shen & Xiucheng Dong & Yang Li & Chade Li, 2025. "The Impact of ESG Ratings on Corporate Sustainability: Evidence from Chinese Listed Firms," Sustainability, MDPI, vol. 17(13), pages 1-25, June.
    2. Yan Zhao & Yubin Gao & Diming Hong, 2025. "Sustainable Innovation and Economic Resilience: Deciphering ESG Ratings’ Role in Lowering Debt Financing Costs," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(1), pages 4309-4343, March.
    3. Sakhr Bani-Khaled & Graça Azevedo & Jonas Oliveira, 2025. "Environmental, social, and governance (ESG) factors and firm value: A systematic literature review of theories and empirical evidence," AMS Review, Springer;Academy of Marketing Science, vol. 15(1), pages 228-260, June.
    4. Xiaoling Yu & Kaitian Xiao, 2022. "Does ESG Performance Affect Firm Value? Evidence from a New ESG-Scoring Approach for Chinese Enterprises," Sustainability, MDPI, vol. 14(24), pages 1-40, December.
    5. Archana Saxena & Rajesh Singh & Anita Gehlot & Shaik Vaseem Akram & Bhekisipho Twala & Aman Singh & Elisabeth Caro Montero & Neeraj Priyadarshi, 2022. "Technologies Empowered Environmental, Social, and Governance (ESG): An Industry 4.0 Landscape," Sustainability, MDPI, vol. 15(1), pages 1-17, December.
    6. Ahmad Yuosef Alodat & Yunhong Hao, 2025. "Environmental, social and governance (ESG) disclosure and firm performance: Moderating role of board gender diversity and sustainability committee," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(1), pages 636-651, February.
    7. Lei Ruan & Heng Liu, 2021. "Environmental, Social, Governance Activities and Firm Performance: Evidence from China," Sustainability, MDPI, vol. 13(2), pages 1-16, January.
    8. Reni Listyawati & Hadri Kusuma & Yuni Nustini, 2025. "The Role of Sustainability Disclosure in Enhancing Bank Performance: Evidence from ASEAN Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 21-43.
    9. Qinglan Wu & Guifu Chen & Jing Han & Liyan Wu, 2022. "Does Corporate ESG Performance Improve Export Intensity? Evidence from Chinese Listed Firms," Sustainability, MDPI, vol. 14(20), pages 1-16, October.
    10. Ann Susan Thomas & Ambili Jayachandran & Ajithakumari Vijayappan Nair Biju, 2024. "Strategic mapping of the environmental social governance landscape in finance – A bibliometric exploration through concepts and themes," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4428-4453, September.
    11. Ho, Ly & Bai, Min & Lu, Yue & Qin, Yafeng, 2021. "The effect of corporate sustainability performance on leverage adjustments," The British Accounting Review, Elsevier, vol. 53(5).
    12. Mutee Ur Rahman & Faisal Abbas, 2025. "Exploring bank diversification and performance: evidence from South Asia," Future Business Journal, Springer, vol. 11(1), pages 1-15, December.
    13. Meryem Ayad & Said El Mezouari, 2022. "Research on the implication of artificial intelligence in accounting subfields: current research trends from bibliometric analysis, and research directions," Post-Print hal-05138659, HAL.
    14. Sameer Al Johani & Adnan Atm, 2022. "Revisiting the Relationship between Corporate Governance and Firm performance: Evidence from British Manufacturing Firms," Acta Universitatis Bohemiae Meridionalis, University of South Bohemia in Ceske Budejovice, Faculty of Economics, vol. 25(1), pages 7-32.
    15. Hans B. Christensen & Luzi Hail & Christian Leuz, 2021. "Mandatory CSR and sustainability reporting: economic analysis and literature review," Review of Accounting Studies, Springer, vol. 26(3), pages 1176-1248, September.
    16. Manpreet Kaur Makkar & Basit Ali Bhat & Mohsin Showkat & Fatma Mabrouk, 2025. "The ESG Paradox: Risk, Sustainability, and the Smokescreen Effect," Sustainability, MDPI, vol. 17(16), pages 1-17, August.
    17. Ningning Kong & Yu Bao & Yiyuan Sun & Yawen Wang, 2023. "Corporations’ ESG for Sustainable Investment in China: The Moderating Role of Regional Marketization," Sustainability, MDPI, vol. 15(4), pages 1-22, February.
    18. Chen, Zhongfei & Xie, Guanxia, 2022. "ESG disclosure and financial performance: Moderating role of ESG investors," International Review of Financial Analysis, Elsevier, vol. 83(C).
    19. Chenhao Gong & Alina Badulescu, 2025. "Management Motivation, Ethical Responsibility or Social Pressure: How Top Managers Improve Green Behaviors Through Behavioral Strategic Control?," Sustainability, MDPI, vol. 17(7), pages 1-30, April.
    20. Tiantian Cui & Weixian Wei & Jianhua Huangfu, 2025. "Climate Policy Uncertainty and Green Technology Innovation: An Inverted U Relationship?," Sustainability, MDPI, vol. 17(17), pages 1-22, September.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jknowl:v:16:y:2025:i:2:d:10.1007_s13132-024-02303-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.