Are corporate environmental, social, and governance practices contagious? The peer-effect perspective

Abstract

Environmental (E), social (S), and governance (G) concepts have become a global consensus. Therefore, exploring the motivation mechanism adopted by companies to carry out ESG practices to promote sustainable social and economic development is of far-reaching significance. This study investigated whether there was a peer effect in the ESG practices of A-share listed companies and explored its mechanism of action and economic consequences using the data of Chinese A-share listed companies from 2010 to 2021. The empirical results show that there is a significant regional and industry peer effect on the ESG practices of A-share listed companies, which still holds when the average stock trait return is used as the instrumental variable. Furthermore, the mechanism test indicates that the information learning motive and agency cost are potential reasons for the peer effect of ESG practices. On the one hand, followers with information disadvantages tend to imitate the ESG practices of leaders with information advantages, but the converse is invalid. On the other hand, a worse external information environment leads to a higher degree of uncertainty, while a higher agency cost leads to a stronger peer effect of ESG practices. Lastly, the peer effect of corporate ESG practices helps create corporate value and increases corporate risk-taking to some extent. This paper provides a new micro perspective for understanding the occurrence mechanism and economic consequences of ESG practices, as well as crucial empirical evidence for firms to make sustainable development investment decisions.