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A non-linear assessment of ESG and firm performance relationship: evidence from China

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  • Ganlin Pu

Abstract

The main objective of this paper is to assess the non-linearities between the ESG activities and firm performance in case of an emerging market. China is identified as a case study for the present examination. Even though this research objective has been explored by past researcher, the evidence presented in literature is not conclusive. The paper hypothesizes that such conflicting or inconclusive results can potentially be attributed to wrong modeling, datasets that include both developing and the developed markets, and the prevalent endogeneity issue in corporate governance literature. For the purpose of this paper, the author uses the dynamic panel approach of First difference and the System Generalized Method of Moments. The findings from the analysis of 232 Chinese listed firm show a positive association between ESG activities and the firm performance. However, the relationship is nonlinear. In other words, the relationship between ESG activities and the firm performance is inverted U-shaped. This indicates the relationship is positive up to a certain threshold and once the ESG activities cross that threshold it start to have negative effect. The key insight from this research is that the firm has to find their threshold of ESG activities to gain maximum benefits from such activities.

Suggested Citation

  • Ganlin Pu, 2023. "A non-linear assessment of ESG and firm performance relationship: evidence from China," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 36(1), pages 2113336-211, March.
    • Handle: RePEc:taf:reroxx:v:36:y:2023:i:1:p:2113336
    DOI: 10.1080/1331677X.2022.2113336
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    Cited by:

    1. Bagh, Tanveer & Hunjra, Ahmed Imran & Corbet, Shaen, 2025. "The impact of corporate governance on firm value: Understanding the role of strategic change," International Review of Economics & Finance, Elsevier, vol. 103(C).
    2. Chen, Pei-Fen & Chen, Mei-Ping, 2025. "Do country sustainability practices matter to happiness?," Economic Modelling, Elsevier, vol. 152(C).
    3. Hyun-Jung Nam & Mehmet Huseyin Bilgin & Doojin Ryu, 2024. "Firm value, ownership structure, and strategic approaches to ESG activities," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 14(1), pages 187-226, March.
    4. Bagh, Tanveer & Zhou, Bingjun & Alawi, Suha Mahmoud & Azam, Rauf I, 2024. "ESG resilience: Exploring the non-linear effects of ESG performance on firms sustainable growth," Research in International Business and Finance, Elsevier, vol. 70(PA).
    5. Mohammed R. M. Salem & Shahida Shahimi & Suhaili Alma‘amun & Abdul Hafizh Mohd Azam & Mohd Fahmi Ghazali, 2025. "ESG and Banking Performance in ASEAN-5: Disaggregated Analysis Using System GMM and LSDVC," SAGE Open, , vol. 15(4), pages 21582440251, November.
    6. Rajat Deb & Anita Behra & Karkaria Dusmanta, 2026. "ESG Scores and Its Impact on Firm Performance: Study from Nifty100 Firms," IIM Kozhikode Society & Management Review, , vol. 15(1), pages 65-77, January.

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