Can ESG Ratings Suppress Corporate Financialization?

Corporate financialization represents a significant aspect of the shift from a real to a virtual economy. Curtailing financialization behavior in corporations is essential for fostering a sustainable and robust real economy. ESG (Environmental, Social, Governance) ratings, as an emerging evaluative system, are increasingly influencing corporate governance and investment decisions, potentially mitigating the drive towards corporate financialization. This study utilizes panel data from Chinese listed companies between 2008 and 2021 and applies a multi-period DID (Difference-in-Differences) methodology to empirically examine the impact of ESG ratings on corporate financialization levels. The findings reveal that ESG ratings significantly inhibit corporate financialization. This conclusion is reinforced by parallel trend tests, placebo tests, and PSM-DID robustness checks. Further analysis shows that the inhibitory effect of ESG ratings on financialization is more pronounced in non-state-owned enterprises and companies located in eastern regions. This research provides new insights into the influence of ESG ratings on corporate behavior, offering empirical evidence and reference for policymakers aiming to promote sustainable corporate practices and curb financialization.