ESG Competitive Advantage and the Cost of Equity: A Competitor-Based Perspective

This study examines the association between ESG competitive advantage (ECA) and the cost of equity (COE) in an emerging-market setting. Using Chinese A-share listed firms from 2012 to 2024, this study identifies product-market competitors through textual similarity and constructs a competitor-relative ESG measure. While ECA is negatively associated with the capital asset pricing model-based (CAPM-based) COE, the estimated economic magnitude is modest. ECA is also positively associated with analyst coverage and green innovation, which are treated as related outcomes rather than as identified transmission mechanisms. In joint specifications, the relative component of ECA does not provide statistically-supported incremental explanatory power beyond firms’ own ESG (environmental, social, and governance) performance. The observational design cannot exclude reverse causality or omitted variables. Accordingly, the results represent conditional associations, rather than causal effects. The China-based evidence is not directly generalizable, but the framework supports comparative research across emerging markets.