The Spillover Effect of ESG Performance on Green Innovation—Evidence from Listed Companies in China A-Shares

Abstract

This research paper examines the spillover effect of ESG performance on green innovation behavior in companies within the same industry. The study specifically focuses on listed companies on the Shanghai Stock Exchange and Shenzhen Stock Exchange between 2011 and 2020. The results indicate that peer firms with superior environmental, social, and governance (ESG) performance have a notable and beneficial impact on the green innovation activities, quantities, and qualities of their counterparts. Significantly, this phenomenon is especially evident for the ecological (E) and societal (S) aspects of ESG performance when considering companies within the same industry. Additionally, according to our analysis, the association between peer firms’ improved ESG performance and subsequent gains in green innovation activities is mediated by higher R&D expenditure and increased green consciousness. The robustness of these findings persists even after resolving issues of endogeneity through thorough testing. In addition, this paper finds that the spillover effects are more significant for non-state-owned firms, small-sized firms, firms with more analyst attention, firms in non-highly polluting industries, and when external environmental regulations are stronger.