When Tone Speaks Louder: How ESG Tone Shapes the Association between ESG Ratings and Firm Performance

Prior studies have linked ESG ratings to improved firm performance, yet how disclosure tone shapes this relationship has received limited attention. Drawing on signaling theory, this study examines whether the tone of ESG disclosures conditions the relationship between ESG ratings and firm performance. Using an initial collection of 10,021 ESG reports from Chinese listed firms, which yields 9,321 firm-year observations after sample refinement, we find that a positive tone is associated with a stronger positive relationship between ESG ratings and firm performance, especially in high-information-asymmetry contexts. Institutional investors with long-term investment horizons and non-QFII institutional investors are more responsive to those tonal signals. The findings suggest that textual characteristics in sustainability reporting carry information weight and that tone may shape how investors interpret ESG performance.