The Impact of the River Chief System on Corporate ESG Performance: Evidence from China

This paper takes the implementation of the River Chief System (RCS) as a case study representing government-led environmental governance policies. Based on the sample of 11,654 observations of Chinese A-share-listed companies spanning the years 2009 to 2021, it empirically examines the effect of the RCS on corporate Environmental, Social, and Governance (ESG) performance and the macro- and micro-mechanisms utilizing a staggered Difference-in-Differences (DID) model, controlling for companies' financial and organizational structure characteristic variables, cities' economic characteristic variables, and firm-year two-way fixed effects. The results indicate that the implementation of the RCS significantly enhances corporate ESG performance, a conclusion supported by various robustness checks such as the parallel trend test and placebo test. Further investigation reveals that implementing the RCS, at the micro level, boosts corporate green technology innovation, increases environmental protection investment, and, at the macro level, heightens public environmental attention, thus improving corporate ESG performance. Heterogeneity analysis finds that the RCS has a more pronounced impact on enhancing ESG performance for enterprises in central and western regions of China, state-owned enterprises, enterprises with political connections, and enterprises in mature and declining stages. These research findings of this paper provide valuable insights for local governments seeking to enhance the RCS, enrich environmental governance frameworks, and facilitate corporate green transformation.