From comparability to sustainability: new evidence on ESG performance and financial constraints

We investigate how accounting comparability enhances corporate environmental, social, and governance (ESG) performance and whether financial constraints mediate this relationship in China. Using a balanced panel of 786 non-financial A-share firms from 2010 to 2023, we employ panel-corrected standard errors (PCSE), the Sobel mediation test, and dynamic GMM estimations to address endogeneity concerns. We find that higher accounting comparability significantly enhances ESG performance, with the strongest effect observed in the governance pillar. Further analysis shows that accounting comparability reduces firms’ financial constraints by alleviating information asymmetry, whereas financial constraints adversely affect ESG performance. Mediation analyses confirm that financial constraints partially mediate the relationship between accounting comparability and ESG performance. The results are robust to alternative measures and model specifications. We suggest that enhancing accounting comparability can promote corporate sustainability by improving reporting quality and the financing environment, providing implications for policymakers, investors, and corporate managers.