Will the ‘government-court coordination’ of corporate bankruptcy disposal improve ESG performance? Evidence from China

We explore the 'government-court coordination' (GCC) mechanism in bankruptcy disposal as a quasi-natural experiment to examine its effect on corporate Environmental, Social, and Governance (ESG) performance. Utilizing data from all Chinese A-share listed companies from 2009 to 2022, we apply the stacked difference-in-differences method. The findings indicate a significant enhancement in ESG performance among firms subjected to GCC policy, confirmed by various robustness checks. Mechanism analysis reveals that GCC's positive impact on ESG performance is primarily driven by alleviating financial constraints for local enterprises and increasing their legal risks. The effect of the GCC on ESG performance is significant in prefectures characterized by a high presence of zombie firms and superior judicial efficiency.