THE IMPACT OF ESG PERFORMANCE ON FIRM VALUE: A CASE STUDY OF CHINA'S A-SHARE LISTED COMPANIES

Abstract

This dissertation examines whether and how ESG performance increases firm value in China’s capital market. It focuses on A-share listed companies and explains the channels xxxx through which ESG creates value. Under China’s carbon reduction goals and the gradual improvement of disclosure rules, listed firms have paid increasing attention to ESG. In this context, ESG practice has shifted from a voluntary choice to a more institutionalized form of corporate governance. At the same time, expectations from regulators, investors, employees, and society have become clearer. However, prior studies still provide limited evidence on the relationship between ESG and firm value because of differences in measurement and identification strategies. In addition, the process through which value is created often remains a “black box.” Therefore, it is necessary to clarify whether firm value growth mainly comes from operational upgrading, financial conditions, or information and monitoring effects, and under what conditions the impact becomes stronger. Accordingly, this dissertation tests whether ESG performance improves firm value among China’s A-share listed firms, identifies stakeholder-mediated channels, and explains the boundary conditions of this relationship. To build the theoretical framework, the study compares and integrates institutional theory, signaling theory, the resource-based view, sustainable development theory, stakeholder theory, and the AMO framework. Institutional theory and signaling theory emphasize external pressure and information effects. However, they do not sufficiently explain how firms develop the internal conditions needed to implement ESG and sustain its effects. The resource-based view highlights the role of strategic resources, yet it is less effective in systematically modeling incentives and external opportunities. Therefore, this study treats ESG not only as a response to external pressure but also as an organizational outcome shaped by internal conditions. Specifically, the drivers of ESG are explained through AMO conditions, namely ability, motivation, and opportunity, while the realization of firm value is explained through stakeholder recognition and response. In this framework, sustainable development theory provides the logic of long-term value creation, stakeholder theory explains the micro-level transmission mechanisms, and AMO supports the hypotheses on ESG drivers. This study has four main objectives. First, it tests whether ESG performance is positively associated with firm value. Second, it evaluates whether ability, motivation, and opportunity factors under the AMO framework can explain ESG performance. Third, it analyzes four parallel channels, namely green cognition, innovation investment, financing conditions, and media influence and monitoring, in order to clarify where value is created. xxix i Fourth, it examines heterogeneity across manufacturing and non-manufacturing firms, state-owned and non-state-owned firms, and heavily polluting and less-polluting industries, so as to explain how the results vary under different governance and regulatory environments. The empirical analysis uses an unbalanced panel of China’s A-share listed companies from 2011 to 2024. Firm value is mainly measured by Tobin’s Q, while ROA is used as an alternative outcome variable. The baseline regressions include firm and year fixed effects and use a consistent set of control variables. Robustness checks cover alternative outcome measures, sample adjustments, and different inference settings. In addition, to evaluate dynamic effects, current ESG is replaced by one, two, and three period lagged ESG variables. Endogeneity is addressed through the Heckman two-step selection model and propensity score matching. For the mediation analysis, bootstrap methods are used to estimate the total, direct, and indirect effects. Granger causality tests are also reported in the appendix as an additional directional check. The results show substantial variation in ESG performance across firms, and the governance and social pillars are generally stronger than the environmental pillar. The regressions on ESG drivers support the AMO logic. Financial resources, liquidity, dividends, and external green development opportunities are positively and significantly associated with ESG performance. The baseline regressions show a strong positive relationship between ESG and Tobin’s Q, and the coefficient remains stable after control variables are added step by step. At the pillar level, the valuation effects of the governance and social dimensions are more stable, while the direct effect of the environmental dimension is weaker in some specifications. This suggests that the returns to environmental performance may be realized more through indirect channels or may require more time to be recognized by the market. The lagged ESG models remain positive, which is consistent with the idea that the value effect of ESG matures over time. In addition, the Heckman and PSM estimates continue to show a positive ESG coefficient. This indicates that sample selection bias and selection on observable characteristics are unlikely to overturn the main findings. The mechanism analysis further shows that ESG affects firm value through multiple stakeholder-mediated channels. The bootstrap mediation results confirm that all four channels have statistically significant indirect effects, among which the financing channel is the strongest. In other words, ESG mainly increases firm value by improving contract conditions, reducing risk perceptions, and lowering the cost of external financing. Innovation investment and green cognition are also significant channels, indicating that capability accumulation and green orientation play an additional role in supporting expectations of long-term cash flows. The xxxixi ii media channel is relatively weaker, but it still highlights the role of information intermediation and external monitoring. The mediation results also show that the environmental pillar tends to influence firm value mainly through indirect channels, whereas the governance and social pillars may have stronger direct valuation effects. Moreover, the heterogeneity tests confirm that the value effect of ESG is stronger among manufacturing firms, non-state-owned firms, and less-polluting industries. The contributions of this dissertation are threefold. First, by comparing different theories, it proposes an integrated framework that links ESG drivers, ESG behavior, and firm value within one analytical structure. Second, it quantitatively distinguishes the relative importance of four stakeholder-mediated channels. Third, it shows that the benefits of ESG are not evenly distributed across A-share listed firms, but vary under different conditions. In practical terms, firms should treat ESG as a strategic resource system, embed ESG targets into governance and incentive arrangements, and improve the credibility of ESG-related information through stronger disclosure assurance. This can reduce information asymmetry and financing costs, which is consistent with the strongest mechanism identified in this study. Policymakers can further improve market trust and valuation efficiency by refining reporting standards and by combining incentives with appropriate regulatory constraints. Investors, in turn, can use ESG quality information to improve valuation and risk assessment.