Do high-quality online interactions improve corporate ESG performance? Evidence from China

Purpose The rapid development of the internet and information technology has fundamentally reshaped the mechanisms of information exchange among participants in the capital market. Despite the increasing importance of investor–firm online interactions (IFOIs), there is limited understanding of whether they affect corporate environmental, social and governance (ESG) performance. Using the unique experimental setting provided by China’s official interactive investor platforms – Hudongyi and Ehudong – this study aims to investigate the impact of IFOI quality on ESG performance, as well as the underlying mechanisms. Design/methodology/approach The sample for this study consists of Chinese A-share non-financial listed firms from 2010 to 2022. Both ordinary least squares regression and ordered logit regression are used in the benchmark empirical tests. To address potential endogeneity issues, a series of robustness checks are conducted, including the instrumental variable method and propensity score matching. Findings The authors obtain robust results indicating that high-quality IFOIs exert a positive and significant effect on corporate ESG performance. Channel tests reveal that IFOIs can mitigate managerial myopia by increasing information transparency, thereby enhancing firms’ incentives to engage in ESG practices. The authors also find that the positive effect of IFOI quality is more pronounced when more ESG-related issues are included in interactive Q&A sessions, and among firms with higher financial constraints and greater external pressure. Furthermore, the most significant impact of IFOI quality is observed in the social responsibility component of ESG sub-items. High-quality IFOIs can significantly reduce the divergence of ESG ratings. The number and tone of management responses also affect ESG performance. Finally, the authors find that improved ESG performance can increase corporate performance. Research limitations/implications This paper has several limitations. First, the authors employ soft cosine similarity to measure high-quality IFOIs, which may be subject to noise interference, and look forward to better metrics in the future. Second, due to data availability and the specific focus of the study, the sample is limited to non-financial listed firms in China. Future research could explore appropriate contexts for expanding the sample to other industries and emerging markets. Practical implications This study provides insights for regulatory authorities to strengthen the role of social media as an important external governance mechanism and offers a theoretical basis for better integrating the internet with the real economy.Moreover, the findings suggest that improving the IFOI quality can contribute to better ESG performance in firms. Social implications This study offers valuable guidance for countries with a large proportion of retail investors, emphasising the role of information technology and policy supervision in fostering better IFOIs. In addition, it suggests that investor relations management platforms are crucial in promoting the sustainable development of emerging economies, such as China. Originality/value This study contributes to the literature on the determinants of corporate ESG performance by exploring the role of two-way communication between managers and external investors. It also enriches the literature on the role of investor–firm interactions in shaping corporate investment decisions.