Linking ESG Performance to Corporate Value in China’s Equity Market

Abstract

This study investigates the relationship between Environmental, Social, and Governance (ESG) performance and firm market valuation using a panel of Chinese A-share listed companies over the period 2012 to 2022. In the context of increasing economic uncertainty and evolving sustainability requirements, the analysis explores whether stronger ESG engagement contributes to higher enterprise value. Employing a dataset of 1,500 firms, corresponding to 16,500 firm-year observations, and a two-way fixed-effects model that controls for firm-specific heterogeneity and time effects, the results reveal a consistently positive and statistically significant association between ESG performance and firm value.
Further analysis indicates that this relationship is not uniform across firms. The valuation effect of ESG performance varies with ownership structure and firm size, with state-owned enterprises and smaller firms exhibiting relatively stronger ESG-related valuation effects. These findings highlight the importance of institutional and firm-level characteristics in shaping the economic consequences of ESG engagement. Overall, the study contributes to the growing literature on sustainable finance by providing robust evidence from the Chinese market and offers practical implications for investors, corporate managers, and policymakers seeking to integrate ESG considerations into decision-making processes.