Digital government and corporate ESG performance

Abstract

This study examines the impact of digital government on environmental, social, and governance (ESG) performance, highlighting its importance in advancing sustainable development. By applying a staggered difference-in-differences approach, we find that digital government significantly enhances ESG performance, particularly in the environmental and governance aspects. These results remain robust after addressing endogeneity issues and in a series of robustness checks. Regarding the influencing mechanisms, digital government can enhance regulatory efficiency directly while attracting increased attention from institutional investors, analysts, and the public. These regulatory pressures motivate company managers to make more proactive ESG decisions. Additionally, digital government helps reduce perceived economic policy uncertainty among corporate management and curbs extreme greenwashing behaviors. Heterogeneity analysis indicates that the impact of digital government on corporate ESG performance varies under different external environments and internal governance conditions. Specifically, the promoting effect is more pronounced in regions with well-developed digital infrastructure and in industries characterized by high competition intensity and low pollution levels. Furthermore, in cases of significant agency conflicts between shareholders and management or between controlling and other shareholders, the impact of digital government becomes even more favorable. Lastly, an examination of economic consequences reveals that ESG improvements through digital government enhance firms' long-term financing capacity and contribute to higher market valuation. These findings underscore the role of digital governance in generating tangible financial benefits from ESG engagement and offer a government-oriented solution for promoting sustainable development