Environmental subsidy disruption, skill premiums and ESG performance

Government environmental subsidies play an important role in the sustainable development process. However, environmental subsidies are usually time-limited, and once they are disrupted, firms may seek external financing to improve their ESG performance. To examine the impact of environmental subsidy disruption on corporate ESG performance, we collect data on Chinese A-share firms listed on the Shanghai or Shenzhen stock exchanges from 2011 to 2019 and construct a Difference-in-Difference (DID) model. Our findings suggest that the disruption of environmental subsidies significantly positively affects corporate ESG performance. In terms of potential mechanism exploration, the industry skill premium is the mechanism caused by the disruption of environmental subsidies to improve corporate ESG performance. The higher the industry skill premium, the greater the contribution of environmental subsidies disruption to corporate ESG performance. Heterogeneity analysis shows that the positive impact of environmental subsidy disruption on corporate ESG performance is more significant for firms in high energy-consuming and heavy-polluting industries. In addition, the disruption of environmental subsidies has a significant positive impact on the ESG performance of both state and non-state-owned firms. Our study provides evidence for understanding the impact of subsidy shocks on ESG performance and makes a breakthrough in explaining the motivation for skill premium to promote ESG performance.