Does Fulfilling ESG Responsibilities Curb Corporate Leverage Manipulation? Evidence from Chinese-Listed Companies

Abstract

Against the backdrop of economic transformation and sustainable development, this paper utilizes listed companies from the Shanghai and Shenzhen A-share markets from 2009 to 2021 as research samples, measures corporate leverage manipulation levels using the XLT-LEVM method, and employs a panel fixed effects model to empirically examine the impact of corporate ESG responsibility fulfillment on leverage manipulation behaviors and its underlying mechanisms. The results show that the performance of ESG responsibility can inhibit the leverage manipulation behavior of enterprises, and this effect is more obvious in enterprises with low analyst attention and excessive debt. Mechanism tests reveal that the fulfillment of ESG responsibilities by corporations exerts both reputational and informational effects, which, by mitigating financing constraints and enhancing information transparency, subsequently curtail corporate leverage manipulation. The analysis of economic consequences demonstrates that the inhibitory effect of ESG responsibility fulfillment on corporate leverage manipulation contributes to reducing the risk of corporate debt default. The research conclusions of this paper hold instructive significance for the positive governance role of ESG performance. Consequently, governments and regulatory bodies should guide and support enterprises in assuming ESG responsibilities, and corporations should increase their investments in ESG and enhance their ESG performance.