Configurational Analysis of ESG Performance, Innovation Intensity, and Financial Leverage: a Study on Total Factor Productivity in Chinese Pharmaceutical Manufacturing Firms

Environmental, social, and governance (ESG) performance has emerged as a critical aspect of responsible investing, garnering global attention within the investment community. Unlike traditional financial metrics, ESG encompasses non-financial factors such as corporate sustainability, governance practices, and ethical considerations. This paper delves into the interplay between ESG pillars, innovation intensity, financial leverage, and total factor productivity (TFP) within Chinese pharmaceutical manufacturing firms. We scrutinize the complex causal relationships among these variables by employing a hybrid methodology combining necessary condition analysis (NCA) and fuzzy set qualitative comparative analysis (fsQCA). Our findings reveal that individual ESG factors, R&D investment, and financial leverage are not singularly necessary conditions for high TFP. Instead, a balanced approach that integrates social performance, financial leverage, and innovation intensity emerges as a critical driver of TFP in this industry. The study identifies specific configurations that lead to high TFP, emphasizing the multifaceted nature of productivity determinants. Our research provides actionable insights for pharmaceutical manufacturing companies. They can enhance their enterprise value by strategically allocating resources and capabilities, considering factors like ESG performance and financial leverage. Additionally, the study underscores the importance of transparency through CSR initiatives, suggesting that publishing non-financial information can bolster corporate reputation and ultimately drive TFP. This study advances theoretical understanding and offers valuable implications for practitioners seeking to optimize productivity in the pharmaceutical manufacturing sector while adhering to sustainable and socially responsible business practices.