ESG’s Impact on Chinese-Listed Firms’ Value: Second-Order Moderation Analysis of Financial Constraint and CEO Duality
Abstract
As firms increasingly integrate ESG practices into their corporate strategies, their impact on firm value remains contentious. While ESG initiatives can enhance stakeholder trust and operational efficiency, their financial benefits may be constrained by resource limitations and leadership dynamics. This study investigates the relationship between ESG performance and firm value in Chinese A-share-listed companies from 2014 to 2023, emphasizing the moderating roles of financial constraints and CEO duality. Drawing on Stakeholder Theory and Upper Echelon Theory, this study explores how financial constraints limit firms' ability to derive value from ESG initiatives, while CEO duality further moderates this relationship. Using panel data analysis with the Fixed Effects Model and robust standard errors, the findings reveal that ESG performance negatively influences the P/B ratio and Tobin’s Q, with an insignificant effect on EVA. Financial constraints weaken ESG's positive impact on firm value, particularly for Tobin’s Q, reflecting short-term financial pressures. However, CEO duality’s second-order moderation was insignificant, suggesting that leadership structure may not substantially alter this dynamic. These findings highlight the importance of aligning ESG strategies with firms' financial capacities to ensure effective value creation. Firms should prioritize ESG initiatives that offer measurable outcomes, while policymakers may consider targeted subsidies or incentives to support financially constrained firms. Strengthening independent governance structures can further enhance ESG integration and long-term performance. This study offers practical insights for investors, corporate leaders, and policymakers seeking to balance sustainability with financial outcomes in China's evolving market landscape.
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