This study examines the impact of ESG performance on corporate regulatory violations using a rigorously screened panel dataset of 2327 firm-year observations of Chinese A-share listed companies from 2018 to 2024. Utilizing a Linear Probability Model (LPM) with high-dimensional fixed effects, the empirical results indicate that superior ESG performance significantly inhibits regulatory misconduct. The inhibitory effect remains robust after addressing endogeneity through Two-Stage Least Squares (2SLS) and Propensity Score Matching (PSM), and is validated by a placebo test with 1000 simulations. Heterogeneity analyses reveal a nuanced contingency framework regarding the governance role of ESG. Specifically, the inhibitory effect is more pronounced in State-Owned Enterprises (SOEs), reflecting heightened administrative and social accountability pressures. Furthermore, the study identifies a dual mechanism: audit quality (proxied by Top 10 auditor reputation) serves as a complementary certification signal that amplifies the governance effect, whereas in firms with low information transparency, ESG engagement acts as a substitute self-discipline tool filling the external monitoring void. These findings highlight the substantive role of ESG ratings in strengthening corporate accountability in emerging markets.
Wang et al. (Sat,) studied this question.