The impact of Firms' ESG Performance on Financing Constraints

Abstract

This paper explores the impact of corporate ESG performance on financing constraints based on the data of Huazheng's ESG ratings with a sample of Chinese A-share listed companies from 2012-2021. It is found that financing constraints are negatively correlated with the increase of corporate ESG ratings. Heterogeneity analysis shows that the mitigating effect of corporate ESG performance on financing constraints is more obvious in enterprises whose property rights are state-owned in nature, non-heavily polluted enterprises, and larger firms. The results of the mechanism test indicate that business risk, management power, shareholding ratio of institutional shareholders and are the main mechanisms through which ESG produces a mitigating effect on financing constraints. Theoretically, this paper enriches the study of the economic consequences of corporate ESG performance from the perspective of financing constraints, and at the same time broadens the path for alleviating corporate financing constraints; practically, it provides empirical evidence and policy references for strengthening the construction of the corporate ESG system and accelerating the construction of a fair and competitive financial market.