Concave and convex effects of ESG performance on corporate sustainable development: Evidence from China

Research background: Corporate sustainable development (CSD) is essential to a company's success and survival. Environmental, social, and governance (ESG) are regarded as major factors in measuring the impact of CSD. Companies that perform well in terms of ESG can maintain a competitive advantage and achieve sustainable development. Poor management of ESG performance and involvement in controversial activity can harm a company's credibility and reputation in the market, as well as negatively impact sustainable development. Purpose of the article: Drawing on the stakeholder and signaling theories, this paper investigates the curvilinear nexus between ESG performance and CSD. Methods: Empirical studies were conducted on a sample of 697 Chinese listed manufacturing firms that disclosed ESG information from 2010 to 2020, with a total of 5699 firm-year observations. Quantile regression analysis and the U-test were used to examine the curvilinear ESGCSD relationship. This technique was supplemented by conducting instrumental variables tests and propensity score matching to address concerns relating to the potential existence of endogeneity problems. Findings & value added: The results of the quantile regression estimation confirm the concave-convex (inverted U-shaped and U-shaped) ESG-CSD relationship via the U-test. The relationships between the environmental and social components and CSD follow an inverted U-shaped or half-inverted U-shaped pattern, while the relationship between the governance component and CSD exhibits a concave-convex pattern. A concave ESG-CSD nexus is evident in environmentally sensitive industries, whereas a half concave-convex ESG-CSD nexus is confirmed in non-environmentally sensitive industries. This study improves scholars' understanding of ESG performance and provides a comprehensive perspective on the double-edged effects (positive and negative consequences) of ESG practices. The instrumentalization of ESG practices for management to seek personal gain has a negative impact on CSD, while ESG practices that add value for stakeholders have a positive impact. These findings provide empirical evidence for Chinese publicly listed manufacturing firms to effectively conduct ESG practices.