Empirical Research on the Impact of ESG Performance on the Valuation of Listed Manufacturing Companies in China

Abstract

ESG refers to environmental, social, and corporate governance. The spread of ESG has become a raging trend in the western countries, and China has also kept pace with the times. In 2018, it released a new version of the Code of Governance for Listed Companies which requires Chinese-listed companies to disclose ESG-related information. Stakeholders such as investors consider the ESG performance of the company when valuing the company. Thus, this paper mainly focuses on the impact of ESG performance on the corporate valuation of China’s listed manufacturing companies. The paper takes China’s Shanghai and Shenzhen A-share listed manufacturing companies from 2012 to 2022 as a sample, uses a two-way fixed effect method to make an empirical analysis to study the impact of ESG performance of China’s listed manufacturing companies on valuation, and according to high/low polluting industries and regions, conducts heterogeneity analysis, and finally conducts a robustness test. The paper’s main conclusions are as follows: firstly, higher valuations are associated with better ESG performance of China’s listed manufacturing companies in Shenzhen and Shanghai A-share; secondly, higher valuations are associated with better ESG performance of listed manufacturing companies in heavily polluting industries, while the improvement of ESG performance of listed manufacturing companies in low-polluting industries has relatively weaker impact on valuations; Further for the listed companies located in the eastern region the evidence is that an improvement of their ESG performance has a positive impact to their valuation. At last, the paper puts forward some suggestions for company, society, and government separately and formulates some search questions for potential future studies.