An Analysis of the Effects of ESG on Firm Performance and Financial Risk : Evidence from Chinese Stock Markets

Abstract

In this paper, we examine the effects of ESG(corporate environmental, social and governance) on firm petformance and financial risk. We choose China's A-share manufacturing firms listed on Shanghai and Shenzhen Stock Exchanges. Sample span covers January 2010 to December 2020. We obtain the financial data from the online CSMAR DB and Wind DB. Using panel data, we employ panel regression analysis. We choose Tobin's Q and Altrnan's Z-score as dependent variables to calculate firm performance and financial risk. We select the popular Bloomberg ESG composite score as independent variable to measure the corporate ESG. In addition, we add six control variables, namely, firm size, growth, book-to-market value ratio, rate of return, annual and industry dummy variables. We find that the ESG not only improve firm perfonnm1ce but also reduce film's financial risk. These findings are largely consistent with prior studies. This paper has at least two limitations due to sample collection difficulty. First, we use only the manufacturing industry data for empirical analysis. Second, we include only the state-owned firms in the sample, excluding the private manufacturing industry. In the future studies, we hope to overcome these limitations of this paper.