Environmental, Social and Governance Performance: Can It Resolve Enterprises Overcapacity?

Abstract

The issue of overcapacity has been a widespread concern in the international community since the global financial crisis. For developing countries, adopting effective measures to alleviate overcapacity is crucial to overcome development bottlenecks and achieve the “dual-carbon” target on schedule. The integration of environmental, social, and governance (ESG) principles, which advocates for clean production and sustainable operation, reshapes the business philosophy of enterprises during their development process and profoundly influences enterprise behavior. It is worthwhile to explore how the ESG performance of Chinese enterprises affects capacity utilization (CU). Using data from 4,100 A-share listed companies over the period 2009 to 2022, the study employs a two-way fixed effects model for empirical analysis. The results of this study are as follows: (a) good ESG performance can enhance enterprises' CU; (b) ESG performance enhances CU by alleviating information asymmetry, improving green innovation capability, and strengthening internal control levels; and (c) the impact is more significant in non-state-owned, small, capital-intensive, and low-carbon industries. This study supports the global adoption of ESG practices and provides insights for addressing overcapacity issues in the context of global decarbonization.