Digital Finance Promotes Corporate ESG Performance: Evidence from China

Abstract

Whether and how digital finance can promote corporate environmental, social, and governance (ESG) development has become an important issue. Based on panel data from listed companies in the Shanghai and Shenzhen stock markets from 2011 to 2017, this paper investigates whether and how digital finance can promote the ESG performance of Chinese companies. The empirical results indicate that digital finance not only promotes the ESG performance of Chinese companies but also indirectly facilitates it by alleviating their financing constraints. Channel tests reveal that digital finance predominantly facilitates corporate ESG development through the promotion of social performance and corporate governance performance, but it does not contribute to corporate ESG development by promoting corporate environmental performance. Further research finds that digital finance more strongly promotes ESG in enterprises in the eastern region, state-owned enterprises, small enterprises, and polluting enterprises. Finally, this article puts forward some policy recommendations for high-quality economic development in China, such as driving “ESG financial innovation” to make full use of the enabling role of digital finance in corporate ESG development, effectively bringing enterprises’ attention to environmental performance development and guiding digital finance to promote ESG development in the western region and in non-state-owned enterprises.