ESG Performance, R&D Investment, and Firm Performance: Evidence from Chinese A-Share Listed Companie

DOI: https://doi.org/10.62517/jse.202611409

Author(s)

Juncheng Liu1, Genping Yu2, Zhongyan Lin2,*

Affiliation(s)

1Department of Economics, Fujian University of Technology, Fuzhou, Fujian, China 2College of Computer International Digital Economy, Minjiang University, Fuzhou, Fujian, China *Corresponding Author

Abstract

Whether ESG engagement improves financial performance is still debated: many firms treat ESG spending as a cost, while regulators promote it as a route to high-quality development. We study this question with 22,724 firm-year observations on Chinese A-share listed companies from 2012 to 2021. Firms with higher Huazheng ESG scores have significantly higher return on total assets. The effect runs through innovation: ESG performance raises R&D intensity, and after R&D is controlled for, the direct effect of ESG on ROA is no longer significant. The effect is also uneven. It is concentrated in large firms, and it is stronger under state ownership and under concentrated ownership. The results hold when we exclude the pandemic years, use ROE instead of ROA, and instrument ESG with its industry-year mean. The findings argue against uniform ESG requirements and suggest that ESG creates value mainly when it leads to innovation.

Keywords

ESG Performance; Firm Performance; R&D Investment; Moderating Effect; Chinese Listed Companies

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