Can Sustainability Pay Off? Evaluating ESG Disclosure and Financial Outcomes in Chinese's Health Care Firms

Abstract

This study analyzes the influence of environmental, social, and governance disclosure (ESG) on the financial performance (FP) of health care firms listed in Shanghai and Shenzhen Stock Exchange Markets in China. Based on both stakeholder and signaling theory, using panel data from 2012 to 2022 Ordinary Least Squares (OLS) and System Generalized Method of Moments (GMM), we investigate the influence of ESG overall disclosure score together with their individual components (environmental, social, and governance) on the FP of health care firms. We find that ESG activities have a significant positive impact on the company's both accounting and market-based measures of performance. In addition, governance and social activities have a positive significant effect on FP. However, environmental activities and disclosure were negatively and significantly associated with FP. The study provides novel insights by describing the nuanced financial trade-offs of ESG practices in a highly regulated and capital-intensive industry like health care. It contributes to the literature by emphasizing that although environmental investments may hinder short-term FP, strong governance and social activities remain essential drivers of sustainable performance in health care. The study provides empirical insights on how ESG practices impact FP in the health care industry and complements the available literature on the economic efficiency of ESG performance, particularly in FP. This calls for more refined ESG strategies tailored to sector-specific realities.