Can ESG advantages mitigate corporate financial risk? New empirical evidence from Chinese listed companies

The sustainable development strategy has reshaped a company's business philosophy and motivated it to develop environmental, social, and governance (ESG) advantages to mitigate its corporate financial risk (CFR). To verify this, a sample of A-share listed non-financial companies over 2009-2021 is employed in this study. The main findings are threefold: First, a company's ESG advantages can reduce its CFR significantly, which is strengthened by high economic policy uncertainties and weak institutional environments. Second, as indicated in the mechanism analysis, the above impact of ESG advantages on CFR is potentially transmitted through financial constraints and agency costs. Third, there is evidence in support of the robustness of the estimated panel models and the elimination of the endogeneity problem. These findings provide a new ESG perspective for understanding influential factors of a company's sustainable business development and profound evidence for implementing ESG policies and regulations to improve a company's financial performance.