ESG and firm operational efficiency: evidence from Chinese listed companies

This paper aims at exploring whether and how environment, social responsibility, and corporate governance (ESG) affects firm operating efficiency (FOE). The potential moderating role of cash flow has also been studied in an effort to disentangle its relationships in this context. By using data on A-share listed companies from 2011 to 2020 in China, we find that a good ESG performance has a significantly positive impact on FOE. After changing the measurement of FOE, using Huazheng ESG performance and a series of stability tests such as endogenous tests, the results are still robust. Meanwhile, we find that the primary driver of the positive impact of ESG on FOE lies in its capacity to enhance economies of scale. In addition, we also find that ESG has a more pronounced effect on FOE for non-manufacturing enterprises and privately-owned enterprises. These results suggest that ESG has become an effective way to improve FOE. Exploring the impact of ESG performance on corporate operational efficiency is of significant practical significance for getting rid of corporate development difficulties, promoting good business operation, advancing the upgrading of the industrial structure of the industry, and ultimately realizing the efficient and steady growth of the industry as a whole.