Can ESG certification help company get out of over-indebtedness? Evidence from China

Abstract

Using Chinese listed companies from 2007 to 2019 as a sample, we employ a fixed-effect panel model to provide empirical evidence between ESG and company over-indebtedness. The results show that, benefiting from ESG certification, both firms' leverage scale and incidence of over-indebtedness are inhibited. After controlling for potential endogeneity and measurement bias, this finding remains robust. Heterogeneity analysis shows that the positive effect of ESG on company over-indebtedness is affected by both micro and macro factors, showing more significant impact for companies with higher debt levels, non-innovative companies, non-highly polluting companies, and companies in eastern regions. Moreover, mechanism analysis suggests that the driving force behind this phenomenon is that ESG certification effectively relaxes financing constraints and enhances stock liquidity. Moreover, we discuss the economic implications of the positive effect of ESG on company over-indebtedness and find that the resulting moderating effect promotes companies' cross-regional investment and improves investment efficiency. This paper has important practical implications for revealing the value of ESG certification and provides useful insights into ways of getting out of over-indebtedness for companies in emerging market countries.