Corporate ESG performance and credit misallocation: Evidence from China

Using data from Chinese-listed companies from 2010 to 2020, this paper investigates the impact of corporate environmental, social, and governance (ESG) performance on credit misallocation. We find that ESG performance significantly reduces credit misallocation, which remains robust to various sensitivity tests. Mechanism analysis reveals that ESG reduces credit misallocation by alleviating information asymmetry. This "information supplementary effect" is primarily evident at the firm rather than the macro level. Further discussion reveals a more pronounced impact of ESG in firms with lower profitability and higher market competition, as well as those located in less financially developed regions. However, this impact becomes less salient during periods of credit expansion. Our research highlights the importance of corporate ESG performance in deterring information asymmetry, and provides insights into improving the resource allocation efficiency in the credit market.