ESG and Financial Performance of China Firms: The Mediating Role of Export Share and Moderating Role of Carbon Intensity

Abstract

In recent years, ESG (environmental, social, and governance) has emerged as a critical investment concept. Its goal is to create value for both shareholders and society, encouraging companies to optimize social value. However, the exploration and research into “the proportion of firms exporting and the pathways through which the environmental, social, and governance activities of carbon-intensive firms influence firms’ financial performance” remains largely unexplored. This study establishes a research framework within this context, utilizing listed Chinese manufacturing companies as the research subjects. Taking agency theory rationale and signaling theory as the theoretical framework, this study thoroughly investigates the relationship between ESG ratings, corporate export ratios, and corporate financial performance through panel regression models using fixed-time, fixed-industry, and bi-directional fixed-effects models. The results of this study show that (1) ESG ratings have a positive impact on corporate financial performance; (2) firms’ export ratios play a mediating role in the relationship between ESG ratings and corporate financial performance; and (3) carbon-intensive firms have a positive moderating effect on the relationship between ESG ratings and corporate financial performance. Based on these findings, we propose policy recommendations at the firm and government levels to increase the importance of ESG, strengthen corporate governance, and promote continuous progress in ESG. This study provides micro evidence of the interactions between ESG ratings, export ratios, carbon-intensive firms, and firm performance to enable investors to make informed decisions.