Does ESG performance inhibit or promote herding behavior of institutional investors?

In recent years, environmental, social, and governance (ESG) issues have attracted much attention in the capital market. As the herding behavior of institutional investors is a prominent phenomenon in the capital market, it is of great value to explore how firms' ESG performance affects herding. Using A-share listed firms in China from 2009 to 2023 as a sample, we found that good ESG performance can inhibit herding. Moreover, the inhibitory effect is very pronounced for firms with low analyst attention and firms that do not hire a top-ten domestic audit firm, and this inhibitory effect is mainly driven by social responsibility (S dimension) and governance (G dimension) We also found that ESG performance can improve the price efficiency of the capital market. Our study expands the literature on the economic consequences of firms' ESG performance in terms of herding behavior of institutional investors.