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Article
Publication date: 18 December 2024

Feng Wang, Huadan Han and Lei Zeng

Environmental, social and governance (ESG) performance has received significant attention around the world. Could robust ESG performance become a new advantage for supporting…

Abstract

Purpose

Environmental, social and governance (ESG) performance has received significant attention around the world. Could robust ESG performance become a new advantage for supporting companies’ outward foreign direct investment (OFDI) in emerging markets? Prior studies have not articulated the nexus between ESG performance and OFDI. This paper aims to conduct both theoretical and empirical work to clarify the effect, especially the mechanisms of ESG performance on companies’ OFDI.

Design/methodology/approach

Using the data of A-share listed companies in China from 2010 to 2020, this paper empirically tests the effect and the mechanisms of ESG performance on companies’ OFDI.

Findings

Firstly, robust ESG performance increases the likelihood of companies engaging in OFDI and also augments the scale of such investments. Within the realm of ESG, environmental performance, social performance and governance performance all play important roles in fostering OFDI. Secondly, strong ESG performance promotes OFDI by enhancing the competitive edge and alleviating financial constraints. Also, environmental performance, social performance and governance performance individually contribute to supporting competitiveness and mitigating financial constraints. Thirdly, the effect of ESG performance on OFDI is particularly pronounced for companies targeting developed countries, those operating in heavily polluting sectors and those with significant institutional investor presence.

Originality/value

This study advances the applicability of the stakeholder theory in the realm of firm internationalization. Moreover, the findings of this paper provide new strategies for promoting the OFDI of companies in emerging market economies.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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