The green factor: how ESG performance enhances accounting information quality in China's listed companies

Environmental, social, and governance (ESG) practices have become integral to corporate quality development. Despite this, there remains a need for deeper exploration of the theoretical value of accounting information in relation to ESG performance. This study addresses this gap by investigating the influence of ESG performance on accounting information quality (AIQ) using data from companies listed on the A-share market in China between 2010 and 2021. Our findings demonstrate that companies exhibiting stronger ESG performance also exhibit higher AIQ levels. These results hold even after employing instrumental variable methods, Heckman two-stage method, and substitution variables. Furthermore, our mediation effect analysis indicates that superior ESG performance enhances AIQ by bolstering internal control quality, mitigating financing constraints, and fostering green innovation. Notably, our heterogeneity analysis reveals that ESG performance exerts a more pronounced impact on AIQ for companies with low analyst' attention, high dynamic capabilities, and high profitability. We argue that enhancing the ESG disclosure framework is imperative for Chinese companies seeking to enhance AIQ and facilitate the evolution of high-quality corporations. These findings contribute to a clearer understanding of the relationship between ESG performance and AIQ, providing valuable insights for both academia and practice.