Nonlinear Dynamics of ESG , ESG Controversies, and Firm Performance: The Role of Controlling Shareholders

This study examines the nonlinear relationships between environmental, social, and governance (ESG) performance, ESG controversies, and firm performance, and investigates the moderating role of controlling shareholders. Using panel data from A‐share listed mainland Chinese firms within Huawei's domestic supplier network from 2018 to 2022, this study applies firm fixed effects models with year fixed effects and firm‐level clustered standard errors. The findings provide weak evidence of a U‐shaped relationship between overall ESG performance and firm performance, while governance performance exhibits the strongest nonlinear relationship. In contrast, environmental and social performance show no significant nonlinear associations with firm performance. ESG controversy exposure also shows no robust nonlinear relationship with firm performance. The moderation results indicate that controlling shareholder influence may flatten the U‐shaped relationship between ESG performance and firm performance, while its moderating role in the ESG controversy relationship remains statistically weak. However, these moderation findings are sensitive to alternative proxies for controlling shareholder influence. Drawing on stakeholder theory and the principal–principal conflict perspective, this study demonstrates that the relationship between ESG performance and firm performance varies across ESG dimensions and may depend on shareholder control. The findings provide implications for managers, investors, and policymakers by emphasizing the importance of considering the nonlinear and governance‐dependent nature of ESG‐related outcomes.