Does ESG Performance Improve the Quantity and Quality of Innovation? The Mediating Role of Internal Control Effectiveness and Analyst Coverage

Abstract

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.

Does Environmental, Social, and Governance (ESG) Performance Improve Financial Institutions’ Efficiency? Evidence from China

“…ESG performance reduces the downside risk of financial institutions by disclosing relevant value information to stakeholders in a timely manner, which in turn gives investors the ability to make timely and correct investment decisions and reduces the information asymmetry problem. Second, financial institutions with better ESG performance usually have sound corporate governance mechanisms that can effectively monitor management and reduce the possibility of withholding bad news and self-interested behaviors, thus reducing downside risks and ensuring the sustainable development of the company [30]. Third, an increasing number of investors incorporate ESG performance into their investment decisions, favoring firms with superior ESG performance.…”

How does corporate ESG performance affect sustainable development: A green innovation perspective

“…Referring to existing studies (Feng et al, 2022;Wu et al, 2022;Li et al, 2023), we measure firms' ESG performance based on the Sino-Securities Index (SSI) ESG Rating System, which currently provides the most widely covered and frequently updated ESG rating data in China. The SSI ESG rating data were derived from the WIND database, and other data were collected from the CSMAR database.…”

Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III

“…Moreover, the Sino-Securities ESG rating covers all A-share listed companies, covering three primary indicators (environmental, social, and corporate governance), 14 secondary indicators (environmental management systems, green business objectives, green products, external environmental certifications, environmental violations, institutional systems, health and safety, social contributions, quality management, system-building, governance structure, operational activities, operational risks, and external sanctions), 26 tertiary indicators, and over 130 underlying data indicators, resulting in a nine-grade rating from low to high (denoted as C-AAA). The indicators selected by the Sino-Securities ESG rating combine the mainstream international ESG assessment framework, consider Chinese characteristics and specific practical experience, and incorporate the opinions of external market experts, which are reasonable and have been widely used by academics [58,[72][73][74][75]. Therefore, this study draws on Fang and Hu and He and Zhuang [76,77], the C-AAA ratings are assigned as 1-9, and ESG performance is measured by taking the mean of each quarterly rating.…”