Good for bad: The heterogeneous effects of export controls on firms' ESG

This paper empirically analyzes how U.S. export control policies affect the environmental, social, and governance (ESG) performance of firms in sanctioned sectors that are not yet blacklisted, using comprehensive data from the U.S. entity list and information on Chinese publicly listed companies spanning from 2014 to 2022, applying the multiple-period DID method. The findings show that following the emergence of blacklisted firms in the industry, other firms in the same sector experience a significant increase in their ESG performance, which holds after undergoing various robustness tests. This indicates that firms tend to respond to "bad" events, such as the uncertainty caused by trade shocks, by adopting "good" measures, including enhancing their ESG practices. We borrow the Awareness-Motivation-Capability (AMC) framework to conduct heterogeneity analysis, and find that firms operating in industries with higher levels of sanction intensity, firms in politically sensitive industries, reputation-oriented firms, and firms with less fixed assets or a higher share of imports from the United States exhibit a larger ESG promotion effect. In addition, we find the proportion of government subsidies relative to total assets, the return on equity (ROE), and the firm's market share increase after the firm's industry is sanctioned, which enhances their capacity to engage in ESG practices. This paper widens the scope of research on the impact of export controls on firm behavior and offers new insights for decision-making in responding to U.S. export control shocks.