How Does Corporate ESG Performance Affect Financial Irregularities?

Abstract

As a violation of moral integrity, corporate financial irregularities not only cause losses to investors and other stakeholders, but the enterprise itself is also punished by the relevant regulatory authorities. However, to realize their own interests, some enterprises still violate laws and participate in financial irregularities. Good environmental, social, and governance (ESG) performance can reduce corporate risks, improve financial status, and constrain financial irregularities. This study empirically clarifies the impact of ESG performance on financial irregularities in Chinese listed companies. Furthermore, we examine the moderating role of stakeholder attention—that is, the public, media, and institutional investors. Based on 1050 observations of non-financial and non-real estate companies listed on the Shanghai and Shenzhen Stock exchanges from 2011 to 2020, this study examines the impact of ESG performance on financial irregularities using a fixed-effects model. Additionally, we verify the moderating effect of public, media, and institutional investor attention to the impact of ESG on financial irregularities. The results indicate that firms with better ESG performance have fewer financial irregularities. At the same time, the greater the attention of the public, media, and investors, the stronger the inhibitory effect of ESG performance on financial irregularities. This study helps broaden the relevant corporate social responsibility (CSR) and financial management theories and provides theoretical support for enterprises to improve ESG performance and inhibit financial irregularities.