THE RELATIONSHIP BETWEEN ESG, FINANCING CONSTRAINTS AND FINANCIAL PERFORMANCE: EVIDENCE FROM CHINA

ESG has become an internationally accepted indicator of an overall level of development within a company. This study empirically examines the impact of ESG on the corporate financial performance of Chinese A-share listed companies in the manufacturing industry from 2019 to 2023. The study considers panel regression techniques in order to test the hypotheses. Moreover, a mediation process is also considered to understand the impact of financial constraints. ESG scores were sourced from the Huazheng ESG Rating framework, while financial and firm-level data were obtained from the CSMAR database. The results of the study find that ESG performance has a statistically significant and positive effect on financial performance (coefficient = 0.014, p<0.01). Moreover, it has also been found that ESG performance alleviates financing constraints (coefficient = –0.550, p < 0.01), which in turn positively influences financial performance (coefficient = –0.015, p < 0.01). This indicates a partial mediating effect in place. Finally, the subgroup analysis reveals that the financial benefits of ESG practices are more pronounced in non-state-owned enterprises (non-SOEs) (coefficient = 0.014, p < 0.01) than in state-owned enterprises (SOEs) (coefficient = 0.013, p < 0.01). This indicates that ownership structure plays a moderating role in the relationship. This study provides empirical evidence that optimizing ESG performance can enhance the market competitiveness of listed manufacturing companies in China, while also offering theoretical support for policy-making. There are also substantial implications for firms, as the study suggests ESG principles should be incorporated by firms to ensure strategic planning, and to reduce financing constraints and improve financial outcomes.