Does regional development moderate the effect of state ownership reduction on ESG Performance in China?

This study examines the impact of state ownership reduction on firms' Environmental, Social, and Governance performance and investigates how regional development influences this relationship. Using panel data from Chinese publicly traded firms between 2012 and 2024, we employ a fixed-effect design combined with robust econometric techniques, including propensity score matching (PSM), Heckman two-stage estimation, and the generalized method of moments (GMM), to address endogeneity concerns. Our empirical results show that reductions in state ownership are significantly associated with a decline in firms' ESG performance; however, the effect size appears relatively modest, and the findings should be interpreted as robust correlations rather than definitive causal effects. The analysis also suggests that higher levels of regional development help mitigate this negative association by enhancing local institutional conditions. This study contributes important insights for policymakers by highlighting how privatization and subnational development can jointly influence corporate sustainability practices in emerging markets.