How Does Firm ESG Performance Impact Financial Constraints? An Experimental Exploration of the COVID-19 Pandemic

Abstract

This research assesses the effects of COVID-19-associated shocks on financial constraints and sustainable development goal (SDG) performance to shed light on the impact of SDGs on economic recovery. We construct a large sample of Chinese listed firms from quarterly firm-level accounting data from the China Stock Market & Accounting Research Database for the period 2019Q1–2021Q1, matched with environmental, social, and governance (ESG) scores, SDG performance from the WIND Database, and complemented with data on cumulative and new cases of COVID-19 from the World Health Organization. We use difference-in-differences to investigate any causal effect from COVID-19. We find that COVID-19 induces financial constraints in firms. Further, differing from the existing literature on the determinants of SDGs, we explore the supportive role of SDG performance on firm financial performance and show that ESG can better describe SDG performance and alleviate financial constraints. Moreover, both internal and external financial intermediaries improve with enhanced ESG performance in overcoming financial constraints. Our findings strongly indicate that a sustainable development strategy facilitates efficient adaptation to financial challenges and assists in overcoming external shocks.

The environment, social and governance (ESG) activities and profitability under COVID-19: evidence from the global banking sector

“…This thus becomes a competitive advantage and a source of new revenue streams, especially during the health crisis. This somehow supports the view of the positive effect of ESG in the non-financial sector (Broadstock et al, 2021;El Khoury et al, 2021;Yoo et al, 2021;L€ o€ of et al, 2022;Zhang et al, 2022).…”

“…It is because ESG banks can attract more responsible investors and customers (Amel-Zadeh and Serafeim, 2018;Pedersen et al, 2021). It thus supports the argument that in the recent years, the COVID-19 and climate change have necessitated speeding up the transition of the global economy towards a low-carbon and more sustainable development (Bischof et al, 2021;PwC, 2021;Yoo et al, 2021;L€ o€ of et al, 2022;Zhang et al, 2022). As a result, our study provides empirical incentives for bank managers to be more ESG-oriented in their activities.…”

“…As a result, especially during the health crisis, this has become a competitive advantage and a source of new revenue streams. All lends credence to the idea that ESG has a positive impact on financial performance, even in the non-financial sector (Wang et al, 2015;Broadstock et al, 2021;El Khoury et al, 2021;Yoo et al, 2021;L€ o€ of et al, 2022;Zhang et al, 2022).…”

The impact of digital transformation on corporate total factor productivity

“…It cannot ignore its moderating effect in the process of DT influence on TC and TFP. Most existing ESG studies focus on the impact on financing constraints ( Zhang et al, 2022 ), innovation levels ( Xu et al, 2020 ), or economic performance ( Yu et al, 2021 ). Empirical studies are also needed to support the moderating role of ESG in the corporate business process.…”

Firm Value and ESG Performance During the Covid-19 Pandemic

“…Zhang et al investigated the influence of ESG performance on Chinese companies during the COVID-19. The findings show that better ESG performance significantly reduces the negative impact of the pandemic on financial constraints by increasing both internal and external financial intermediation, including liquidity and both short-and long-term debt, alleviating firm financial constraints [5]. Broadstock et al examined the role of ESG performance during financial crises by analyzing the performance of CSI300 stocks during the COVID-19 global pandemic.…”