Revisiting the relationship between ESG, institutional ownership, and corporate innovation: An efficiency perspective

Abstract

AbstractThis paper investigates how environmental, social, and governance (ESG) efficiency impacts corporate innovation, highlighting its role as a crucial indicator of resource utilization within firms. Analyzing data from A‐share listed companies in China between 2009 and 2021, we find that ESG efficiency levels are positively correlated with corporate innovation outputs. This indicates that higher ESG efficiency contributes to greater innovation. Our result also reveals that the relationship between ESG efficiency and corporate innovation is moderated by the firm's ownership structure. Specifically, the negative moderating effects of ownership are more pronounced in regions with lower economic development or stringent environmental regulations. Technology‐based firms are particularly affected, exhibiting greater vulnerability to these negative effects. These findings confirm that ESG efficiency is a significant mechanism linking ESG practices to enhanced innovation capabilities. By exploring both the efficiency aspects of ESG performance and the institutional factors influencing ESG‐innovation dynamics, our study makes a notable contribution to the literature, offering new insights into how effective ESG practices can strategically drive innovation within firms.