Behavioral Channels Linking Firm Characteristics and Environmental, Social, and Governance Performance: Evidence from Chinese Listed Firms

Abstract

This study examines the effects of firm characteristics on environmental, social, and governance (ESG) performance among A-share firms listed in Shanghai and Shenzhen. Drawing on the resource-based view, legitimacy theory, and agency theory, this study examines both direct and indirect mechanisms connecting corporate profitability, firm size, and ownership concentration to enhance ESG performance. This research employs secondary panel data from the CSMAR, DIB, and WIND databases (13,911 observations) and estimates two-way fixed effects models with firm-clustered standard errors. The outcomes show that profitability, firm size, and ESG performance have positive relationships, but ownership concentration is a negative factor in ESG performance. Market share and managers’ risk preferences mediate the relationship between firm characteristics and ESG performance; however, these effects are interpreted as exploratory due to panel data constraints. Internal control enhances these relationships, which emphasize the importance of the process of sustainability itself. The study provides practical insights that managers, policymakers, or investment firms can apply to improve ESG integration accountability in the emerging markets context.