Customer ESG Preferences and Firms' ESG Performance: A Stakeholder Theory Perspective

Based on stakeholder theory, when analyzing the influence of customers on firms' environmental, social and governance (ESG) behaviors, it is necessary to consider the customer ESG preferences. In this study, we propose that customer ESG preferences drive firms' ESG performance. In addition, we further propose that customer power, customer urgency and customer legitimacy are important relational attributes for customers to affect firms' ESG performance. Our argument is supported by empirical tests of Chinese A-share listed companies between 2009 and 2020. Our findings identify two impact channels through which customers influence firms' ESG behaviors - the customer governance and support channels. Finally, heterogeneity analysis shows that the influence of customer ESG preferences is more pronounced for state-owned enterprises and samples with low initial ESG values. This study enriches the ESG literature and stakeholder theory.