Board network and ESG performance: Evidence from China

Abstract As ESG (Environmental, Social, and Governance) principles increasingly shape the trajectory of global economic and societal sustainability, our study delves into how a firm's network dynamics influence its ESG performance within the Chinese landscape spanning from 2011 to 2020. Drawing insights from agency theory, resource dependence theory, and social network theory, we uncover a notable correlation between board interlocking and ESG performance. This correlation suggests that well‐connected directors can potentially enhance a firm's ESG performance by facilitating information gathering, monitoring, advising, and leveraging influence to address stakeholders' concerns. Moreover, our analysis reveals that the characteristics of ownership structure, as gauged by indicators such as institutional ownership, control‐cash flow wedge, and state‐owned ownership, serve as positive moderators in this relationship. Conversely, board structure, as evaluated by board independence, does not exhibit a significant moderating effect. Additionally, we uncover noteworthy mediating effects of firm size and institutional shareholding on the relationship between board interlocking and ESG performance. Importantly, our findings hold robust across various sensitivity analyses, including alternative model specifications, variable definitions, and strategies to mitigate potential endogeneity concerns.