ABSTRACT We use the environmental protection agencies' vertical management reform (EPAVMR) in China as a representative policy of environmental governance centralization and a quasi‐natural experiment. Based on panel data from A‐share listed firms in China between 2012 and 2022, we employ the staggered difference‐in‐differences (staggered DID) model to examine the impact of environmental governance centralization on corporate environmental, social, and governance (ESG) performance. Our results indicate that environmental governance centralization significantly improves corporate ESG performance. The main mechanisms are through strengthening the environmental regulation intensity and promoting corporate green investment. Moreover, the positive impact of environmental governance centralization is more pronounced in firms registered outside the county area, higher levels of political connections, and higher market attention. We demonstrate that the external environmental management system is one of the key factors influencing ESG performance and provides valuable insights into firms' green and sustainable development.
Li et al. (Tue,) studied this question.
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