Abstract

This study examines the impact of ESG performance on corporate regulatory violations using a rigorously screened panel dataset of 2327 firm-year observations of Chinese A-share listed companies from 2018 to 2024. Utilizing a Linear Probability Model (LPM) with high-dimensional fixed effects, the empirical results indicate that superior ESG performance significantly inhibits regulatory misconduct. The inhibitory effect remains robust after addressing endogeneity through Two-Stage Least Squares (2SLS) and Propensity Score Matching (PSM), and is validated by a placebo test with 1000 simulations. Heterogeneity analyses reveal a nuanced contingency framework regarding the governance role of ESG. Specifically, the inhibitory effect is more pronounced in State-Owned Enterprises (SOEs), reflecting heightened administrative and social accountability pressures. Furthermore, the study identifies a dual mechanism: audit quality (proxied by Top 10 auditor reputation) serves as a complementary certification signal that amplifies the governance effect, whereas in firms with low information transparency, ESG engagement acts as a substitute self-discipline tool filling the external monitoring void. These findings highlight the substantive role of ESG ratings in strengthening corporate accountability in emerging markets.

Data availability

The datasets generated and analysed during the current study are not publicly available due to licensing restrictions imposed by the data providers, the Wind Economic Database (WIND) and the China Stock Market & Accounting Research Database (CSMAR). However, these data are available from the providers to subscribers who meet the access criteria. The Stata code (do-file) used for the empirical analysis is available from the corresponding author upon reasonable request.

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Source: nature.com