THE MECHANISM OF HOW ESG AFFECTS CORPORATIONS PERFORMANCE: ASYMMETRY INFORMATION AND PROPERTY RIGHTS

Abstract

Recently, many experts have focused on the relationship between ESG performance and firm performance. Most studies on the Chinese market have discovered a strong link between ESG and company performance, but only a few have looked into the mechanism. Additionally, just a few studies examine the impact of property rights and the theoretical foundations that support them. This paper adopts firm fixed effects and year fixed effects regression to analyze 1,595 of China’s listed enterprises with 12,760 observations. The results indicate ESG enhanced the corporations’ performance partly by reducing the asymmetric information level, and the mediated effect of asymmetry information on corporations’ performance is weakened for state-owned companies. These findings suggest that by enhancing ESG performance, businesses may reduce asymmetric information levels and boost performance. Furthermore, state-owned firms receive more trust due to social trust; therefore; however, this effect is not as strong as it is for non-state-owned enterprises.