Financial Regulation and Corporate ESG Performance: Evidence from the Chinese Capital Market

Abstract Financial regulation plays a crucial role in fostering corporate ESG performance, particularly in the context of China’s economy aiming for high-quality development. This paper utilizes the panel data of Chinese A-share listed companies from 2009 to 2020 to empirically investigate the impact and mechanism of local financial regulation on corporate ESG performance. We find that local financial regulation promotes corporate ESG performance, ‘financing constraints’ and ‘risk-taking’ are two mechanisms through which local financial regulation affects corporate ESG performance, and heterogeneity analysis shows that it has a stronger impact on the ESG performance of private enterprises and non-high-tech enterprises. Further analysis reveals that local financial regulation in the categories of ‘fee violations’ and ‘interbank violations’ has a more significant impact on corporate ESG performance. This paper helps to realize the role of credit market in building corporate ESG performance.