ESG performance and cross-region investment: evidence from China
Abstract
Purpose
This study examines the impact of environmental, social and governance (ESG) performance on cross-region investment in China.
Design/methodology/approach
This study utilized firm-level data from the China Stock Market and Accounting Research database covering 2009 to 2021, comprising 3,600 Chinese listed firms. Cross-region investment activities were measured using data on establishing subsidiaries across regional borders obtained from the TianYanCha website. Besides, this study also implemented the instrumental variables (IV) and difference-in-differences approach to address potential endogeneity issues. The panel Poisson and panel negative binomial models are used for robustness tests.
Findings
The findings indicate that companies with better ESG performance are more likely to establish cross-region subsidiaries, positively affecting cross-regional investment activities. Strong ESG performance reduces financing constraints, enhances information transparency and improves corporate reputation and resource allocation efficiency, thereby increasing cross-regional investment. Well-established ESG performance also helps overcome judicial barriers. Moreover, cross-region investments driven by ESG are less motivated by tax avoidance, pollution transfer and management self-interest.
Research limitations/implications
We focus on listed companies in China, which may limit the applicability of our conclusions to other regions. Our measurement of cross-region investment might also underestimate its extent due to diverse investment methods. We suggest two future research directions: first, studies could explore the future performance of ESG-facilitated cross-region investments; second, further analysis could assess whether corporate ESG performance effectively dismantles administrative barriers and mitigates market segmentation.
Originality/value
Under China’s distinctive market segmentation phenomenon, this study fills a gap by providing new causal evidence of the role of managerial performance in mitigating capital flow boundaries.
Keywords
Acknowledgements
Mingyang Li thanks the Fundamental Research Funds for the Central Universities, HUST (Grant No. 2024JYCXJJ001) for providing financial support.
Citation
Li, M. and Hu, Y. (2025), "ESG performance and cross-region investment: evidence from China", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-03-2024-0563
Publisher
:Emerald Publishing Limited
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