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This study tests the performance of environmental, social, and governance (ESG) on corporate innovation and the mediating effect of internal control effectiveness and analyst coverage on this relationship, by using data on China’s A-share listed companies from 2009 to 2020. The results show that ESG performance significantly improves innovation quantity, measured by the number of authorized invention patents, and innovation quality, measured by the number of patent citations. The internal and external mechanism tests show that the quantity and quality improvement effect of ESG performance on corporate innovation is dependent on effective internal controls and adequate analyst coverage. The results of the heterogeneity analysis show that improvement in the quality of enterprise-driven innovation is primarily due to knowledge spillover into the domestic market. The additional analysis suggests that the promoting effect is more obvious when the chief executive officer (CEO) serves as a board chairman, the corporation belongs to non-state-owned and large-scale enterprises, the industry in which the market competition is higher, and the corporation is located in a general city. This study provides a foundation for developing a better ESG valuation theory to assist management and investors in making better decisions to improve business performance and investment returns.

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