Digital Finance, ESG Performance, and Financial Performance in Chinese Firm Levels: The Pathway to Sustainability

Abstract

Given that digital finance is critical for achieving sustainability, this study seeks to probe the mechanisms for using digital finance to solve the triple-bottom-line dilemma of sustainability. This paper examines the inner influence mechanisms of digital finance on ESG (environmental, social, and governance) and financial performance. The results show digital finance is conducive to ESG performance while indirectly enhancing firms’ short- and long-term financial performance via ESG. Further, digital finance usage depth is the primary enabler for ESG and short-term financial performance. The mechanism analysis reveals that the positive relationship between digital finance and ESG will be enhanced by upgrading green innovation and boosting digital transformation. Moreover, heterogeneous analysis states that digital finance usage depth has a more pronounced positive role on ESG and financial performance in large firms and SOEs (state-owned enterprises) while coverage breadth positively affects ESG and is more pronounced in small firms and non-SOEs. This paper expands knowledge about digital finance via sustainability practice pathways.