An empirical research on ESG, digital transformation and firm value in China

Ke Li; Chonlavit Sutunyarak

doi:10.24294/jipd.v8i8.7239

Home - JIPD - Volume 8 - Issue 8

Submit to JIPD

Journal Browser

Volume | Year

Issue

• Current lssue

View All

News and Announcements

View All

An empirical research on ESG, digital transformation and firm value in China

Ke Li

Chonlavit Sutunyarak

Journal of Infrastructure Policy and Development 2024, 8(8), 7239; https://doi.org/10.24294/jipd.v8i8.7239

Submitted：19 Jun 2024

Accepted：31 Jul 2024

Published：21 Aug 2024

Download PDF(338.24KB)

Cite

XML

Abstract

Sustainable development has emerged as a global imperative, with the rapid adoption of the Environmental, Social, and Governance (ESG) framework reflecting this trend. In the context of digital transformation, this study aims to investigate the impact of ESG performance on corporate value, while also examining the moderating and mediating roles of digital transformation and green innovation within this relationship. Utilizing annual data from A-share listed companies on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) spanning the years 2018 to 2022, this research encompasses a total of 17,940 observations. Given China’s commitment to sustainable, high-quality development, this study underscores the critical importance of advancing ESG principles alongside corporate digital transformation. Empirical analysis reveals that ESG performance significantly enhances firm value, with digital transformation serving as a positive moderator that amplifies the impact of ESG performance on firm value primarily through the enhancement of firms’ green technology innovation capabilities. These findings contribute to a deeper understanding of the interaction between ESG initiatives and firm value, particularly amidst ongoing digital advancements. Consequently, this paper recommends that governments enhance corporate ESG performance through a combination of incentive and penalty mechanisms, establish a comprehensive ESG rating system, and optimize the policy framework for digital transformation. Moreover, enterprises should foster awareness of green innovation, refine their governance structures, accelerate digital transformation efforts, and promote the application of digital technologies and information sharing across various domains to achieve sustainable development and enhance competitiveness.

Keywords

References

Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/j.bir.2022.11.006

Ba, F., Thiers, P. R., & Liu, Y. (2018). The evolution of China’s emission trading mechanisms: From international offset market to domestic Emission Trading Scheme. Environment and Planning C: Politics and Space, 36(7), 1214–1233. https://doi.org/10.1177/2399654417751928

Benetto, E., Gericke, K., & Guiton, M. (editors). (2018). Designing Sustainable Technologies, Products and Policies. Springer International Publishing. https://doi.org/10.1007/978-3-319-66981-6

Cai, C., Tu, Y., & Li, Z. (2023). Enterprise digital transformation and ESG performance. Finance Research Letters, 58, 104692. https://doi.org/10.1016/j.frl.2023.104692

Chairani, C., & Siregar, S. V. (2021). The effect of enterprise risk management on financial performance and firm value: the role of environmental, social and governance performance. Meditari Accountancy Research, 29(3), 647–670. https://doi.org/10.1108/medar-09-2019-0549

Chen, N., Sun, D., & Chen, J. (2022). Digital transformation, labour share, and industrial heterogeneity. Journal of Innovation & Knowledge, 7(2), 100173. https://doi.org/10.1016/j.jik.2022.100173

Chen, R., & Zhang, T. (2024). Artificial intelligence applications implication for ESG performance: can digital transformation of enterprises promote sustainable development? Chinese Management Studies. https://doi.org/10.1108/cms-11-2023-0653

Chen, W., & Meng, F. (2024). Sustainable development, economic policy uncertainty and tax risk. Sustainability Accounting, Management and Policy Journal. https://doi.org/10.1108/sampj-11-2023-0803

Chen, W., Arn, G., Song, H., et al. (2024). The influences of digital finance on green technological innovation in China’s manufacturing sector: The threshold effects of ESG performance. Journal of Cleaner Production, 467, 142953. https://doi.org/10.1016/j.jclepro.2024.142953

Deng, X., Li, W., & Ren, X. (2023). More sustainable, more productive: Evidence from ESG ratings and total factor productivity among listed Chinese firms. Finance Research Letters, 51, 103439. https://doi.org/10.1016/j.frl.2022.103439

Fitzgerald, M., Kruschwitz, N., Bonnet, D., et al. (2014). Embracing digital technology: A new strategic imperative. MIT Sloan Management Review, 55(2), 1.

Gao, J., Xu, N., & Zhou, J. (2023). Does Digital Transformation Contribute to Corporate Carbon Emissions Reduction? Empirical Evidence from China. Sustainability, 15(18), 13414. https://doi.org/10.3390/su151813414

Gong, C., & Ribiere, V. (2021). Developing a unified definition of digital transformation. Technovation, 102, 102217. https://doi.org/10.1016/j.technovation.2020.102217

Hai, B., Shi, H., Piao, T., et al. (2024). Digitalization of Tax Administration and Its Impact on Corporate ESG Performance. Finance Research Letters, 105791. https://doi.org/10.1016/j.frl.2024.105791

He, L.-Y., & Chen, K.-X. (2023). Digital transformation and carbon performance: evidence from firm-level data. Environment, Development and Sustainability. https://doi.org/10.1007/s10668-023-03143-x

He, X., & Chen, W. (2024). Digital Transformation and Environmental, Social, and Governance Performance from a Human Capital Perspective. Sustainability, 16(11), 4737. https://doi.org/10.3390/su16114737

He, Y., Li, J., & Ren, Y. (2024). Digital transformation and corporate ESG information disclosure herd effect. Finance Research Letters, 65, 105557. https://doi.org/10.1016/j.frl.2024.105557

Hidayat-ur-Rehman, I. (2024). The role of financial literacy in enhancing firm’s sustainable performance through Fintech adoption: a moderated mediation analysis. International Journal of Innovation Science. https://doi.org/10.1108/ijis-03-2024-0056

Huang, Q., Fang, J., Xue, X., et al. (2023). Does digital innovation cause better ESG performance? an empirical test of a-listed firms in China. Research in International Business and Finance, 66, 102049. https://doi.org/10.1016/j.ribaf.2023.102049

Jin, C., Monfort, A., Chen, F., et al. (2024). Institutional investor ESG activism and corporate green innovation against climate change: Exploring differences between digital and non-digital firms. Technological Forecasting and Social Change, 200, 123129. https://doi.org/10.1016/j.techfore.2023.123129

Jun, X., Ai, J., Zheng, L., et al. (2024). Impact of information technology and industrial development on corporate ESG practices: Evidence from a pilot program in China. Economic Modelling, 139, 106806. https://doi.org/10.1016/j.econmod.2024.106806

Juniati, S.R., Sinaga, O., Effendi, K.A., & Rashid, A.Z. (2019). The Effect of Relationship Learning in driving Green Innovation, Green Customer Capital and Firmâ€™s Competitive Advantage. International Journal of Supply Chain Management, 8, 311–318.

Lan, L., & Zhou, Z. (2024). Complementary or substitutive effects? The duality of digitalization and ESG on firm’s innovation. Technology in Society, 77, 102567. https://doi.org/10.1016/j.techsoc.2024.102567

Li, G., Hei, B., Ma, Q., et al. (2024). Subjective perception of economic policy uncertainty and ESG performance: Evidence from China. Investment Analysts Journal, 1–17. https://doi.org/10.1080/10293523.2024.2370665

Li, J., Wu, T., Liu, B., et al. (2024). Can digital transformation enhance corporate ESG performance? The moderating role of dual environmental regulations. Finance Research Letters, 62, 105241. https://doi.org/10.1016/j.frl.2024.105241

Li, Q., Liu, L., Shao, J. (2021). Digital transformation, supply chain integration and corporate performance - the moderating effect of entrepreneurship. Economic Management, 43(10): 5–23.

Li, Y., & Zhao, T. (2024). How Digital Transformation Enables Corporate Sustainability: Based on the Internal and External Efficiency Improvement Perspective. Sustainability, 16(12), 5037. https://doi.org/10.3390/su16125037

Lian, Y., He, X., & Gao, J. (2023). Do customer ESG performance affect supplier innovation? Evidence from China’s listed firms. Economics Letters, 233, 111372. https://doi.org/10.1016/j.econlet.2023.111372

Lian, Y., Li, Y., & Cao, H. (2023). How does corporate ESG performance affect sustainable development: A green innovation perspective. Frontiers in Environmental Science, 11. https://doi.org/10.3389/fenvs.2023.1170582

Lin, Y., Lu, Z., & Wang, Y. (2023). The impact of environmental, social, and governance (ESG) practices on investment efficiency in China: Does digital transformation matter? Research in International Business and Finance, 66, 102050. https://doi.org/10.1016/j.ribaf.2023.102050

Liu, H., & Lyu, C. (2022). Can ESG Ratings Stimulate Corporate Green Innovation? Evidence from China. Sustainability, 14(19), 12516. https://doi.org/10.3390/su141912516

Long, H., Feng, G.-F., & Chang, C.-P. (2023). How does ESG performance promote corporate green innovation? Economic Change and Restructuring, 56(4), 2889–2913. https://doi.org/10.1007/s10644-023-09536-2

Lu, N., & Zhou, W. (2023). The impact of green taxes on green innovation of enterprises: a quasi-natural experiment based on the levy of environmental protection taxes. Environmental Science and Pollution Research, 30(40), 92568–92580. https://doi.org/10.1007/s11356-023-28718-z

Marnoto, S., Silva, C., & Veiga, P. M. (2024). Beyond profit in family businesses: ESG-driven business model innovation and the critical role of digital capabilities. Journal of Family Business Management. https://doi.org/10.1108/jfbm-05-2024-0105

Matt, C., Hess, T., & Benlian, A. (2015). Digital Transformation Strategies. Business & Information Systems Engineering, 57(5), 339–343. https://doi.org/10.1007/s12599-015-0401-5

Matytsin, D. E., Petrenko, Y. S., & Saveleva, N. K. (2022). Corporate Social Responsibility in Terms of Sustainable Development: Financial Risk Management Implications. Risks, 10(11), 206. https://doi.org/10.3390/risks10110206

Miao, Y., Shi, Y., & Jing, H. (2023). Effect of servitization on performance in manufacturing firms: A mediating effect model of digitalisation moderated by ESG performance. Heliyon, 9(10), e20831. https://doi.org/10.1016/j.heliyon.2023.e20831

Mo, Z., Liu, Y., Lu, C., et al. (2023). Influences of industrial internet platform firms’ ESG performance and digital leadership on user firms’ innovation performance: The mediating role of inter-firm trust. Journal of Digital Economy, 2, 204–220. https://doi.org/10.1016/j.jdec.2024.01.002

Mukhtar, B., Shad, M. K., Lai, F.-W., et al. (2023). Empirical analysis of ESG-driven green innovation: the moderating role of innovation orientation. Management & Sustainability: An Arab Review. https://doi.org/10.1108/msar-08-2023-0043

Niu, S., Park, B. I., & Jung, J. S. (2022). The Effects of Digital Leadership and ESG Management on Organizational Innovation and Sustainability. Sustainability, 14(23), 15639. https://doi.org/10.3390/su142315639

Qi, Y., Han, M., & Zhang, C. (2024). The Synergistic Effects of Digital Technology Application and ESG Performance on Corporate Performance. Finance Research Letters, 61, 105007. https://doi.org/10.1016/j.frl.2024.105007

Ray, P. (2022). Understanding the Risk and Opportunities as Well as Performance Variance Associated with ESG Funds for the Future of Investors in India. SMS Journal of Entrepreneurship & Innovation, 8(02), 69–78. https://doi.org/10.21844/smsjei.v8i02.28572

Sang, Y., Xie, M., Bai, X., et al. (2024). Does natural resource dependence influence the impact of financial technologies on corporate ESG and digital governance in China’s listed enterprises? Resources Policy, 91, 104948. https://doi.org/10.1016/j.resourpol.2024.104948

Siachou, E., Vrontis, D., & Trichina, E. (2021). Can traditional organizations be digitally transformed by themselves? The moderating role of absorptive capacity and strategic interdependence. Journal of Business Research, 124, 408–421. https://doi.org/10.1016/j.jbusres.2020.11.011

Solis, B., Li, C. (2014). Szymanski J. The 2014 state of digital transformation. Altimeter Group, 1(1).

Tian, L., Sun, K., Yang, J., et al. (2024). Does digital economy affect corporate ESG performance? New insights from China. International Review of Economics & Finance, 93, 964–980. https://doi.org/10.1016/j.iref.2024.05.015

Wang, D., & Xia, X. (2024). The impact of digital transformation on firms’ value: examining the role of ESG performance and the effect of information interaction. Business Process Management Journal, 30(4), 1236–1265. https://doi.org/10.1108/bpmj-06-2023-0469

Wang, H., Chen, B., He, Y. (2022). Does ESG responsibility fulfilment improve corporate valuation? A quasi-natural experiment from MSCI ratings. Journal of Economics, (03), 1–29.

Wang, H., Jiao, S., Bu, K., et al. (2023). Digital transformation and manufacturing companies’ ESG responsibility performance. Finance Research Letters, 58, 104370. https://doi.org/10.1016/j.frl.2023.104370

Wang, L., Lian, Y., Dong, J. (2022). Research on the impact mechanism of ESG performance on corporate value. Securities Market Guide Journal, (05), 23–34.

Wang, Q., Ma, Z., Wang, X., Wu, D. (2023). State Shareholding in Private Listed Firms and Their ESG Performance: Evidence from China. SSRN. https://doi.org/10.2139/ssrn.4596121

Wang, S., & Esperança, J. P. (2023). Can digital transformation improve market and ESG performance? Evidence from Chinese SMEs. Journal of Cleaner Production, 419, 137980. https://doi.org/10.1016/j.jclepro.2023.137980

Wang, W., Xiao, D., & Wang, J. (2024). The Construction of Free Trade Zones Drives Digital Transformation: Empirical Evidence from Chinese Listed Enterprises. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-024-02053-1

Wang, Z., & Tang, P. (2024). Substantive digital innovation or symbolic digital innovation: Which type of digital innovation is more conducive to corporate ESG performance? International Review of Economics & Finance, 93, 1212–1228. https://doi.org/10.1016/j.iref.2024.05.023

Wang, Z., & Xing, T. (2024). ESG Information Disclosure, Stock Price Informativeness and Corporate Digital Transformation. Applied Economics, 1–17. https://doi.org/10.1080/00036846.2024.2305612

Warner, K. S. R., & Wäger, M. (2019). Building dynamic capabilities for digital transformation: An ongoing process of strategic renewal. Long Range Planning, 52(3), 326–349. https://doi.org/10.1016/j.lrp.2018.12.001

Wei, J., & Zheng, Q. (2024). Environmental, social and governance performance: dynamic capabilities through digital transformation. Management Decision. https://doi.org/10.1108/md-10-2023-2028

Whelan, T., Atz, U., Holt, T. V., et al. (2021). Esg and financial performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015–2020. Semantic scholar. https://api.semanticscholar.org/CorpusID:232216565

Wu, F., Hu, H., Lin, H., et al. (2021). Enterprise digital transformation and capital market performance - Empirical evidence from stock liquidity. Management World, 37(07): 130–144.

Yang, P., Hao, X., Wang, L., et al. (2023). Moving toward sustainable development: the influence of digital transformation on corporate ESG performance. Kybernetes, 53(2), 669–687. https://doi.org/10.1108/k-03-2023-0521

Yang, X., & Han, Q. (2024). Nonlinear effects of enterprise digital transformation on environmental, social and governance (ESG) performance: evidence from China. Sustainability Accounting, Management and Policy Journal, 15(2), 355–381. https://doi.org/10.1108/sampj-08-2023-0553

Yang, Y., & Han, J. (2023). Digital transformation, financing constraints, and corporate environmental, social, and governance performance. Corporate Social Responsibility and Environmental Management, 30(6), 3189–3202. Portico. https://doi.org/10.1002/csr.2546

Zhang, S. (2023). The impact of digital transformation on ESG performance and the moderation of mixed‐ownership reform: The evidence from Chinese state‐owned enterprises. Corporate Social Responsibility and Environmental Management, 31(3), 2195–2210. Portico. https://doi.org/10.1002/csr.2656

Zhao, X., & Cai, L. (2023). Digital transformation and corporate ESG: Evidence from China. Finance Research Letters, 58, 104310. https://doi.org/10.1016/j.frl.2023.104310

Previous
article in this issue

Next
article in this issue