Concave and convex effects of ESG performance on corporate sustainable development: Evidence from China
DOI:
https://doi.org/10.24136/oc.2972Keywords:
ESG; corporate sustainable development; quantile regression; double-edged effectAbstract
Research background: Corporate sustainable development (CSD) is essential to a company's success and survival. Environmental, social, and governance (ESG) are regarded as major factors in measuring the impact of CSD. Companies that perform well in terms of ESG can maintain a competitive advantage and achieve sustainable development. Poor management of ESG performance and involvement in controversial activity can harm a company's credibility and reputation in the market, as well as negatively impact sustainable development.
Purpose of the article: Drawing on the stakeholder and signaling theories, this paper investigates the curvilinear nexus between ESG performance and CSD.
Methods: Empirical studies were conducted on a sample of 697 Chinese listed manufacturing firms that disclosed ESG information from 2010 to 2020, with a total of 5699 firm-year observations. Quantile regression analysis and the U-test were used to examine the curvilinear ESG-CSD relationship. This technique was supplemented by conducting instrumental variables tests and propensity score matching to address concerns relating to the potential existence of endogeneity problems.
Findings & value added: The results of the quantile regression estimation confirm the concave-convex (inverted U-shaped and U-shaped) ESG-CSD relationship via the U-test. The relationships between the environmental and social components and CSD follow an inverted U-shaped or half-inverted U-shaped pattern, while the relationship between the governance component and CSD exhibits a concave-convex pattern. A concave ESG-CSD nexus is evident in environmentally sensitive industries, whereas a half concave-convex ESG-CSD nexus is confirmed in non-environmentally sensitive industries. This study improves scholars’ understanding of ESG performance and provides a comprehensive perspective on the double-edged effects (positive and negative consequences) of ESG practices. The instrumentalization of ESG practices for management to seek personal gain has a negative impact on CSD, while ESG practices that add value for stakeholders have a positive impact. These findings provide empirical evidence for Chinese publicly listed manufacturing firms to effectively conduct ESG practices.
Downloads
References
Ammar Zahid, R. M., Saleem, A., & Maqsood, U. S. (2023). ESG performance, capital financing decisions, and audit quality: Empirical evidence from Chinese state‑owned enterprises. Environmental Science and Pollution Research, 30, 44086–44099.
DOI: https://doi.org/10.1007/s11356-023-25345-6
View in Google Scholar
Amor-Esteban, V., Galindo-Villardón, M. P., & García-Sánchez, I. M. (2018). Useful information for stakeholder engagement: A multivariate proposal of an industrial corporate social responsibility practices index. Sustainable Development, 26(6), 620–637.
DOI: https://doi.org/10.1002/sd.1732
View in Google Scholar
Anton, S. G. (2021). The impact of temperature increase on firm profitability. Empirical evidence from the European energy and gas sectors. Applied Energy, 295, 117051.
DOI: https://doi.org/10.1016/j.apenergy.2021.117051
View in Google Scholar
Arora, L., Kumar, S., & Verma, P. (2018). The anatomy of sustainable growth rate of Indian manufacturing firms. Global Business Review, 19, 1050–1071.
DOI: https://doi.org/10.1177/0972150918773002
View in Google Scholar
Arvidsson, S., & Dumay, J. (2022). Corporate ESG reporting quantity, quality and performance: Where to now for environmental policy and practice? Business Strategy and the Environment, 31(3), 1091–1110.
DOI: https://doi.org/10.1002/bse.2937
View in Google Scholar
Avramov, D., Cheng, S., Lioui, A., & Tarelli, A. (2022). Sustainable investing with ESG rating uncertainty. Journal of Financial Economics, 145(2), 642–664.
DOI: https://doi.org/10.1016/j.jfineco.2021.09.009
View in Google Scholar
Bagh, T., Fuwei, J., & Khan, M. A. (2024). Corporate ESG investments and firm’s value under the real-option framework: Evidence from two world-leading economies. Borsa Istanbul Review, 24(2), 324–340.
DOI: https://doi.org/10.1016/j.bir.2024.01.002
View in Google Scholar
Basu, R., Naughton, J. P., & Wang, C. (2022). The regulatory role of credit ratings and voluntary disclosure. Accounting Review, 97(2), 25–50.
DOI: https://doi.org/10.2308/TAR-2018-0286
View in Google Scholar
Buchinsky, M. (1995). Estimating the asymptotic covariance matrix for quantile regression models a Monte Carlo study. Journal of Econometrics, 68(2), 303–338.
DOI: https://doi.org/10.1016/0304-4076(94)01652-G
View in Google Scholar
Cao, S., Nie, L., Sun, H., Sun, W., & Taghizadeh-Hesary, F. (2021). Digital finance, green technological innovation and energy-environmental performance: Evidence from China’s regional economies. Journal of Cleaner Production, 327, 129458.
DOI: https://doi.org/10.1016/j.jclepro.2021.129458
View in Google Scholar
Carnini Pulino, S., Ciaburri, M., Magnanelli, B. S., & Nasta, L. (2022). Does ESG disclosure influence firm performance? Sustainability, 14, 7595.
DOI: https://doi.org/10.3390/su14137595
View in Google Scholar
Chai, S., Cao, M., Li, Q., Ji, Q., & Liu, Z. (2023). Exploring the nexus between ESG disclosure and corporate sustainable growth: Moderating role of media attention. Finance Research Letters, 58, 104519.
DOI: https://doi.org/10.1016/j.frl.2023.104519
View in Google Scholar
Chang, B. G., & Wu, K. S. (2021). The nonlinear relationship between financial flexibility and enterprise risk-taking during the COVID-19 pandemic in Taiwan’s semiconductor industry. Oeconomia Copernicana, 12(2), 307–333.
DOI: https://doi.org/10.24136/oc.2021.011
View in Google Scholar
Chen, Z., & Xie, G. (2022). ESG disclosure and financial performance: Moderating role of ESG investors. International Review of Financial Analysis, 83, 102291.
DOI: https://doi.org/10.1016/j.irfa.2022.102291
View in Google Scholar
Christensen, D. M., Serafeim, G., & Sikochi, A. (2022). Why is corporate virtue in the eye of the beholder? The case of ESG ratings. Accounting Review, 97(1), 147–175.
DOI: https://doi.org/10.2308/TAR-2019-0506
View in Google Scholar
Coad, A., & Rao, R. (2008). Innovation and firm growth in high-tech sectors: A quantile regression approach. Research Policy, 37(4), 633–648.
DOI: https://doi.org/10.1016/j.respol.2008.01.003
View in Google Scholar
Connelly, B. L., Ketchen, D. J., & Slater, S. F. (2011). Toward a “theoretical toolbox” for sustainability research in marketing. Journal of the Academy of Marketing Science, 39, 86–100.
DOI: https://doi.org/10.1007/s11747-010-0199-0
View in Google Scholar
de la Fuente, G., Ortiz, M., & Velasco, P. (2022). The value of a firm’s engagement in ESG practices: Are we looking at the right side? Long Range Planning, 55(4), 102143.
DOI: https://doi.org/10.1016/j.lrp.2021.102143
View in Google Scholar
Deng, X., Li, W., & Ren, X. (2023). More sustainable, more productive: Evidence from ESG ratings and total factor productivity among listed Chinese firms. Finance Research Letters, 51, 103439.
DOI: https://doi.org/10.1016/j.frl.2022.103439
View in Google Scholar
El Ghoul, S., Guedhami, O., Kwok, C. C., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35(9), 2388–2406.
DOI: https://doi.org/10.1016/j.jbankfin.2011.02.007
View in Google Scholar
Fieller, E. C. (1954). Some problems in interval estimation. Journal of the Royal Statistical Society, B16, 175–185.
DOI: https://doi.org/10.1111/j.2517-6161.1954.tb00159.x
View in Google Scholar
Freeman, R. E., & Evan, W. M. (1990). Corporate governance: A stakeholder interpretation. Journal of Behavioral Economics, 19(4), 337–359.
DOI: https://doi.org/10.1016/0090-5720(90)90022-Y
View in Google Scholar
Ge, G., Xiao, X., Li, Z., & Dai, Q. (2022). Does ESG performance promote high-quality development of enterprises in China? The mediating role of innovation input. Sustainability, 14, 3843.
DOI: https://doi.org/10.3390/su14073843
View in Google Scholar
Gu, Y., Yang, Y., & Wang, J. (2020). Research on employee sense of gain: The development of scale and influence mechanism. Frontiers in Psychology, 11, 568609.
DOI: https://doi.org/10.3389/fpsyg.2020.568609
View in Google Scholar
Haans, R. F. J., Pieters, C., & He, Z. L. (2016). Thinking about U: Theorizing and testing U- and inverted U-shaped relationships in strategy research. Strategic Management Journal, 37(7), 1177–1195.
DOI: https://doi.org/10.1002/smj.2399
View in Google Scholar
Hahn, R., & Kühnen, M. (2013). Determinants of sustainability reporting: A review of results, trends, theory, and opportunities in an expanding field of research. Journal of Cleaner Production, 59, 5–21.
DOI: https://doi.org/10.1016/j.jclepro.2013.07.005
View in Google Scholar
Hao, J, & He, F. (2022). Corporate social responsibility (CSR) performance and green innovation: Evidence from China. Finance Research Letters, 48, 102889.
DOI: https://doi.org/10.1016/j.frl.2022.102889
View in Google Scholar
Hao, L., & Naiman, D. Q. (2007). Quantile regression. London: Sage Publications Inc.
DOI: https://doi.org/10.4135/9781412985550
View in Google Scholar
Hausman, J. (1978). Specification tests in econometrics. Econometrica, 46, 1251–1271.
DOI: https://doi.org/10.2307/1913827
View in Google Scholar
Higgins, R. C. (1977). How much growth can a firm afford? Financial Management, 6(3), 7–16.
DOI: https://doi.org/10.2307/3665251
View in Google Scholar
Jonwall, R., Gupta, S., & Pahuja, S. (2023). Socially responsible investment behavior: A study of individual investors from India. Review of Behavioral Finance, 15(6), 865–888.
DOI: https://doi.org/10.1108/RBF-05-2021-0099
View in Google Scholar
Koenker, R., & Bassett, G. (1978). Regression quantiles. Econometrica, 46(1), 33–50.
DOI: https://doi.org/10.2307/1913643
View in Google Scholar
Kuo, L., & Chang, B. G. (2021). The affecting factors of circular economy information and its impact on corporate economic sustainability-Evidence from China. Sustainable Production and Consumption, 27, 986–997.
DOI: https://doi.org/10.1016/j.spc.2021.02.014
View in Google Scholar
L´opez, B., & Monfort, A. (2017). Creating shared value in the context of sustainability: The communication strategy of MNCs. In Corporate governance and strategic decision making (pp. 119–135). InTech. http://dx.doi.org/10.5772/intechopen.70177.
DOI: https://doi.org/10.5772/intechopen.70177
View in Google Scholar
Lahouel, B. B., Zaied, Y. B., Managi, S., & Taleb, L. (2022). Re-thinking about U: The relevance of regime-switching model in the relationship between environmental corporate social responsibility and financial performance. Journal of Business Research, 140, 498–519. https://doi.org/ 10.1016/j.jbusres.2021.11.019.
DOI: https://doi.org/10.1016/j.jbusres.2021.11.019
View in Google Scholar
Lazar, N., & Chithra, K. (2022). Role of culture in sustainable development and sustainable built environment: A review. Environment, Development and Sustainability, 24(5), 5991–6031.
DOI: https://doi.org/10.1007/s10668-021-01691-8
View in Google Scholar
Lee, M. S. (2023). The relationship between green innovation and sustainable growth in Korean companies: Moderated mediation effect of ESG score by industry. Sustainable Development.
DOI: https://doi.org/10.1002/sd.2807
View in Google Scholar
Li, W., Padmanabhan, P., & Huang, C. H. (2024). ESG and debt structure: Is the nature of this relationship nonlinear? International Review of Financial Analysis, 91, 103027.
DOI: https://doi.org/10.1016/j.irfa.2023.103027
View in Google Scholar
Li, X., Liu, G., Fu, Q., Abdul Rahman, A. A., Meero, A., & Sial, M.S. (2022). Does corporate social responsibility impact on corporate risk-taking? Evidence from emerging economy. Sustainability, 14, 531.
DOI: https://doi.org/10.3390/su14010531
View in Google Scholar
Liao, Y., Qiu, X., Wu, A., Sun, Q., Shen, H., & Li, P. (2022). Assessing the impact of green innovation on corporate sustainable development. Frontiers in Energy Research, 9, 800848. http://dx.doi.org/10.3389/fenrg.2021.800848.
DOI: https://doi.org/10.3389/fenrg.2021.800848
View in Google Scholar
Lind, J. T., & Mehlum, H. (2010). With or without U? The appropriate test for a U-shaped relationship. Oxford Bulletin of Economics and Statistics, 72(1), 109–118.
DOI: https://doi.org/10.1111/j.1468-0084.2009.00569.x
View in Google Scholar
Litvinenko, V., Bowbriсk, I., Naumov, I., & Zaitseva, Z. (2022). Global guidelines and requirements for professional competencies of Natural Resource Extraction Engineers: Implications for ESG principles and sustainable development goals. Journal of Cleaner Production, 338, 130530.
DOI: https://doi.org/10.1016/j.jclepro.2022.130530
View in Google Scholar
Luo, C., Wei, D., & He, F. (2023). Corporate ESG performance and trade credit financing – Evidence from China. International Review of Economics and Finance, 85, 337–351.
DOI: https://doi.org/10.1016/j.iref.2023.01.021
View in Google Scholar
Ma, A., Rm, A., B. B., & Bosek-Rak, D. (2022). Do institutional investors encourage firm to social disclosure? The stakeholder salience perspective. Journal of Business Research, 142, 674–682.
DOI: https://doi.org/10.1016/j.jbusres.2021.12.064
View in Google Scholar
Maas, S., Schuster, T., & Hartmann, E. (2014). Pollution prevention and service stewardship strategies in the third-party logistics industry: Effects on firm differentiation and the moderating role of environmental communication. Business Strategy and the Environment, 23(1), 38–55.
DOI: https://doi.org/10.1002/bse.1759
View in Google Scholar
Maçãs Nunes, P., Neves Sequeira, T., & Serrasqueiro, Z. (2007). Firms’ leverage and labour productivity: A quantile approach in Portuguese firms. Apply Economics, 39(14), 1783–1788.
DOI: https://doi.org/10.1080/00036840600707076
View in Google Scholar
Maiti, M. (2021). Quantile regression, asset pricing and investment decision. IIMB Management Review, 33, 28–37.
DOI: https://doi.org/10.1016/j.iimb.2021.03.005
View in Google Scholar
Mamilla, R. (2019). A study on sustainable growth rate for firm survival. Strategic Change, 28(4), 273–277.
DOI: https://doi.org/10.1002/jsc.2269
View in Google Scholar
Muhmad, S. N., Ariff, A. M., Majid, N. A., & Kamarudin, K. A. (2021). Product market competition, corporate governance and ESG. Asian Academy of Management Journal of Accounting & Finance, 17(1), 63–91.
DOI: https://doi.org/10.21315/aamjaf2021.17.1.3
View in Google Scholar
Naseer, M. M., & Bagh, T. (2024). Building a sustainable future: The impact of corporate social responsibility on firms’ sustainable development. In A. I. Hunjra & K. Hussainey (Eds.). The Emerald handbook of ethical finance and corporate social responsibility (pp. 623–646). Emerald. http://dx.doi.org/10.1108/978-1-80455-406-720241028.
DOI: https://doi.org/10.1108/978-1-80455-406-720241028
View in Google Scholar
Oprean-Stan, C., Oncioiu, I., Iuga, I. C., & Stan, S. (2020). Impact of sustainability reporting and inadequate management of ESG factors on corporate performance and sustainable growth. Sustainability, 12, 8536.
DOI: https://doi.org/10.3390/su12208536
View in Google Scholar
Pu, G. (2023). A non-linear assessment of ESG and firm performance relationship: Evidence from China. Economic Research-Ekonomska Istraživanja, 36(1), 2113336.
DOI: https://doi.org/10.1080/1331677X.2022.2113336
View in Google Scholar
Qureshi, M. A., Kirkerud, S., Theresa, K., & Ahsan, T. (2019). The impact of sustainability (environmental, social, and governance) disclosure and board diversity on firm value: The moderating role of industry sensitivity. Business Strategy and the Environment, 29(3), 1199–1214.
DOI: https://doi.org/10.1002/bse.2427
View in Google Scholar
Sanoran, K. (2023). Corporate sustainability and sustainable growth: The role of industry sensitivity. Finance Research Letters, 53, 103596.
DOI: https://doi.org/10.1016/j.frl.2022.103596
View in Google Scholar
Sasabuchi, S. (1980). A test of a multivariate normal mean with composite hypotheses determined by linear inequalities. Biometrika, 67(2), 429–439.
DOI: https://doi.org/10.1093/biomet/67.2.429
View in Google Scholar
Saygili, E., Arslan, S., & Birkan, A.O. (2022). ESG practices and corporate financial performance: Evidence from Borsa Istanbul. Borsa Istanbul Review, 22(3), 525–533.
DOI: https://doi.org/10.1016/j.bir.2021.07.001
View in Google Scholar
Spence, M. (1973). Job market signaling. Quarterly Journal of Economics, 87, 355–374.
DOI: https://doi.org/10.2307/1882010
View in Google Scholar
Teng, X., Ge, Y., Wu, K. S., Chang, B. G., Kuo, L., & Zhang, X. (2022). Too little or too much? Exploring the inverted U-shaped nexus between voluntary environmental, social and governance and corporate financial performance. Frontiers in Environmental Science, 10, 969721.
DOI: https://doi.org/10.3389/fenvs.2022.969721
View in Google Scholar
Teng, X., Wang, Y., Wang, A., Chang, B. G., & Wu, K. S. (2021). Environmental, social, governance risk and corporate sustainable growth nexus: Quantile regression approach. International Journal of Environmental Research and Public Health, 18, 10865.
DOI: https://doi.org/10.3390/ijerph182010865
View in Google Scholar
Teng, X., Wu, K.S., Kuo, L., & Chang, B. G. (2023). Investigating the double-edged sword effect of environmental, social and governance practices on corporate risk-taking in the high-tech industry. Oeconomia Copernicana, 14(2), 511–549. https://doi.org/ 10.24136/oc.2023.014.
DOI: https://doi.org/10.24136/oc.2023.014
View in Google Scholar
Trumpp, C., & Guenther, T. (2017). Too little or too much? Exploring U-shaped relationships between corporate environmental performance and corporate financial performance. Business Strategy and the Environment, 26(1), 49–68.
DOI: https://doi.org/10.1002/bse.1900
View in Google Scholar
Wang, N., Li, D., Cui, D., & Ma, X. (2022). Environmental, social, governance disclosure and corporate sustainable growth: Evidence from China. Frontiers in Environmental Science, 10, 1015764.
DOI: https://doi.org/10.3389/fenvs.2022.1015764
View in Google Scholar
Wang, X., & Jin, S. (2023). Environmental, social, and governance performance and corporate sustainable development in China. Journal of Global Business and Trade, 19(1), 91–107. http://dx.doi.org/10.20294/jgbt.2023.19.1.91.
DOI: https://doi.org/10.20294/jgbt.2023.19.1.91
View in Google Scholar
Wang, Z., Hsieh, T. S., & Sarkis, J. (2018). CSR performance and the readability of CSR reports: Too good to be true? Corporate Social Responsibility and Environmental Management, 25(1), 66–79.
DOI: https://doi.org/10.1002/csr.1440
View in Google Scholar
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroscedasticity. Econometrica, 48(4), 817–838.
DOI: https://doi.org/10.2307/1912934
View in Google Scholar
Wu, H., Xue, Y., Hao, Y., & Ren, S. (2021). How does internet development affect energy-saving and emission reduction? Evidence from China. Energy Economics, 103, 105577.
DOI: https://doi.org/10.1016/j.eneco.2021.105577
View in Google Scholar
Wu, K. S., & Chang, B. G. (2022). The concave-convex effects of environmental, social and governance on high-tech firm value: Quantile regression approach. Corporate Social Responsibility and Environmental Management, 29(5), 1527–1545.
DOI: https://doi.org/10.1002/csr.2289
View in Google Scholar
Yu, H. C., & Tsai, B. Y. (2018). Environmental policy and sustainable development: An empirical study on carbon reduction among Chinese enterprises. Corporate Society Responsibility and Environmental Management, 25(5), 1019–1026.
DOI: https://doi.org/10.1002/csr.1499
View in Google Scholar
Zhang, D. (2022). Do heterogenous subsides work differently on environmental innovation? A mechanism exploration approach. Energy Economics, 114, 106233.
DOI: https://doi.org/10.1016/j.eneco.2022.106233
View in Google Scholar
Zhang, D. (2023). Subsidy expiration and greenwashing decision: Is there a role of bankruptcy risk? Energy Economics, 118, 106530.
DOI: https://doi.org/10.1016/j.eneco.2023.106530
View in Google Scholar
Zhao, S., Cao, Y., Feng, C., Guo, K., & Zhang, J. (2022). How do heterogeneous R&D investments affect Chinas green productivity: Revisiting the Porter hypothesis. Science of The Total Environment, 825, 154090.
DOI: https://doi.org/10.1016/j.scitotenv.2022.154090
View in Google Scholar
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Oeconomia Copernicana
This work is licensed under a Creative Commons Attribution 4.0 International License.
