Firm Digitalisation Empowers ESG Performance-Evidence From China

Abstract

With the deepening of the concept of green development, it is important to explore how firm digitalisation improves the environmental, social responsibility, and corporate governance (ESG) performance of firms to achieve sustainable development. This study examines the impact of firm digitalisation on ESG performance and its mechanisms using sample data of Chinese A-share listed firms from 2011 to 2023. The results show that firm digitalisation can significantly improve ESG performance, and both management ability as an internal governance mechanism and institutional investors as an external governance mechanism can reinforce this improvement. A mechanism test reveals that improvements in the quality of internal control, total factor productivity, and information transparency are potential channels. Moreover, the effect of digitalisation on ESG performance is more significant for firms with a low supplier concentration and high government subsidies. The effect of digitalisation on ESG performance improvement is more significant for firms located in regions with a high environmental regulation intensity and a good level of digital economy development. In addition, compared to the corporate governance (G) dimension, digitalisation is more effective in improving environmental (E) and social responsibility (S) performance. This study, based on stakeholder theory and upper echelons theory, reveals the mechanisms and boundaries through which firm digitalisation enhances ESG performance, providing a reference for leveraging digital technologies to empower ESG governance and promote high-quality corporate development.