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Does ESG Performance Enhance Financial Flexibility? Evidence from China

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  • Dingzu Zhang

    (School of Economics and Management, Changsha University of Science and Technology, Changsha 410004, China)

  • Luqi Liu

    (School of Economics and Management, Changsha University of Science and Technology, Changsha 410004, China)

Abstract

Environmental, social, and governance (ESG) performance may be one of the strategies firms adopt to enhance their financial flexibility in response to an increasingly uncertain environment and difficult sustainability conditions. We use A-share listed firms in China from 2015 to 2020 as samples to test the influencing mechanism of ESG performance on financial flexibility. The empirical results indicate that ESG performance significantly enhances financial flexibility. The mechanism results show that financing constraints mediate ESG performance and firms’ financial flexibility. The additional analysis suggests that environmental uncertainty and market attention have significant positive moderating effects. That is, the promotion effect of firms in high uncertainty environments is more apparent, and the same is true in high market attention. This study supports instrumental stakeholder theory, signaling, and social impact hypothesis. It has enlightenment significance for firms, investors, and creditors to evaluate ESG performance and government departments to formulate relevant policies.

Suggested Citation

  • Dingzu Zhang & Luqi Liu, 2022. "Does ESG Performance Enhance Financial Flexibility? Evidence from China," Sustainability, MDPI, vol. 14(18), pages 1-22, September.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:18:p:11324-:d:910971
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    2. Michael C. S. Wong & Wei Li, 2024. "Investigating ESG Funds in China: Management Fees and Investment Performance," IJFS, MDPI, vol. 12(2), pages 1-21, April.
    3. Defang Ma & Liangwei Li & Yuxi Song & Mengkai Wang & Qiaowen Han, 2023. "Corporate Sustainability: The Impact of Environmental, Social, and Governance Performance on Corporate Development and Innovation," Sustainability, MDPI, vol. 15(19), pages 1-16, September.
    4. Hu, Jiamin & Li, Kailun & Xia, Yifei & Zhang, Jianing, 2023. "Gender diversity and financial flexibility: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    5. Liang, Zhidong & Yang, Xiao, 2024. "The impact of green finance on the peer effect of corporate ESG information disclosure," Finance Research Letters, Elsevier, vol. 62(PA).
    6. Yang Yang & Jinmian Han, 2023. "Digital transformation, financing constraints, and corporate environmental, social, and governance performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 3189-3202, November.
    7. Anrong Gao & Tianren Xiong & Yuxi Luo & Defeng Meng, 2023. "Promote or Crowd Out? The Impact of Environmental Information Disclosure Methods on Enterprise Value," Sustainability, MDPI, vol. 15(4), pages 1-19, February.

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