ABSTRACT This study examines the relationship between ESG performance and corporate financial performance (CFP), investigating the moderating roles of financing constraints and ownership structure. Using fixed‐effects models and instrumental variable analysis on 200 U.S. listed firms (2010–2020), we find a significant positive ESG‐CFP linkage: one standard deviation ESG increase boosts ROA by 13.5% and ROE by 15.6%. Financing constraints negatively moderate this relationship, with the positive impact of ESG on CFP being reduced by 38.7% in high‐leverage firms (calculated as the percentage difference in the ESG‐CFP slope coefficient between firms with leverage ratios above the 75th percentile and those below the 25th percentile); conversely, strong liquidity enhances the strength of the ESG‐CFP association. Ownership concentration strengthens ESG‐CFP effects, with 25% equity concentration increasing ESG impact by 43.1%. Heterogeneity analysis reveals stronger ESG effects in high‐tech firms and large enterprises, with ESG investments peaking in the second lag period. Findings underscore the necessity for context‐specific ESG strategies that explicitly integrate firms' financing conditions (operationalized as leverage ratio and current ratio) and governance features (operationalized as ownership concentration). For policymakers, the results provide empirical foundations for differentiated regulatory frameworks, including tiered ESG disclosure requirements based on firm size and leverage levels, targeted green financial incentives for low‐liquidity enterprises, and governance‐aligned ESG guidance for firms with concentrated versus dispersed ownership structures. Practically, policymakers can implement these frameworks by calibrating compliance thresholds for ESG reporting to firms' financial capacity and designing incentive mechanisms that account for ownership‐driven differences in ESG implementation efficiency.
Li et al. (Wed,) studied this question.