Economic Policy Uncertainty and ESG Performance: Evidence from China

Abstract

Using the data of listed companies in Chinese A-share market from 2011 to 2020, this paper investigates the effect of the economic policy uncertainty (EPU) on corporate environmental, social, and governance (ESG). The results show that during periods of high economic policy uncertainty, firms increase their overall ESG performance, corporate environmental performance, social performance and governance performance. Heterogeneous analyses show that the positive effect of EPU on ESG performance is more pronounced for state-owned enterprises, for firms with better corporate governance, for firms with more institutional investors, and for firms with less financing constraints. This study contributes to the literature on the determinants of ESG and provides implications for both practitioners and academics.