Outward foreign investment performance, digital transformation, and ESG performance: Evidence from China

Abstract

This study examines the impact of outward foreign direct investment performance (OFDI/OFIP) on digital transformation (DT) and determines how environmental, social, and governance (ESG) performance mediates this relationship. For this purpose, we employ a panel regression model, mediation effect tests (the Sobel test, a bootstrap test, and variable replacement test), and endogeneity analyses (2SLS and GMM method). We also evaluate China's accelerated depreciation of fixed assets policy (ADP) by using a difference-in-difference (DID) model, parallel trend test, propensity score matching (PSM)-DID model, quantile DID model, and bootstrap test. We use the CSMAR database for Chinese OFIP, and perform text and word frequency analysis to obtain the DT score and the Huazheng ESG ratings index for the ESG Performance during the period 2010–2020. (1) Based on the results, OFIP has a significant positive impact on firms' DT, with ESG performance strengthening this relationship. (2) Meanwhile, the ADP restrains the DT and OFIP of high-tech firms in China. These findings provide practical implications for companies aiming to improve their long-term sustainability and competitiveness and obtain a better understanding of the relationship between OFIP, DT, and ESG performance. It is hoped that the findings will be used as a reference for expanding firms' overseas investments, driving DT, and enhancing ESG performance in emerging economies.