The Roles of ESG Disclosure, Innovation in Improving Firm Financial Performance: Evidence from China

This study examines the relationship between ESG disclosure, innovation, and the financial performance of Chinese A-share firms. Utilising stakeholder, resource-based, and legitimacy theories, the research sample consists of 960 Bloomberg-rated listed corporations from 2012 to 2020. The results indicate that ESG disclosure substantially improves firm performance. Tests of robustness validate the conclusion's validity. In addition, the study identifies innovation as a mediator in the relationship between ESG and firm performance. Tests for heterogeneity reveal variations based on company ownership and sensitivity to the environment. There is a substantial correlation between ESG disclosure and firm performance among non-state-owned businesses with minimal environmental sensitivity. State-owned enterprises and environmentally conscious businesses, on the other hand, demonstrate the significant mediating role of innovation. This research contributes to the comprehension of the effectiveness of ESG disclosure and innovation and provides insights into fostering sustainable development through proactive ESG practices.