Corporate ESG and Financial Performance - A Study Based on the Mediating Effect of Financing Constraints

Abstract

The relationship between Environmental, Social, and Governance (ESG) performance and corporate financial performance is crucial for sustainability in listed companies. This study examines the impact of ESG performance on the financial outcomes of A-share listed companies in China from 2006 to 2022. Employing return on assets as an indicator of corporate financial performance, the analysis utilizes a two-way fixed effects model to explore the direct effects of ESG performance and the mediating role of financing constraints. The results demonstrate that robust ESG performance significantly enhances financial performance. Effective ESG management can also alleviate financing constraints, thereby boosting financial outcomes. Additionally, the study reveals that the positive impacts of strong ESG performance are more pronounced in non-state-owned enterprises and companies not primarily monitored for pollution, though benefits are observed across various ownership types and pollution levels. These findings offer valuable insights for policymakers aiming to refine ESG frameworks and for corporations seeking to enhance their ESG engagement to boost financial performance.