Sustainable development, ESG performance and company market value: Mediating effect of financial performance

TLDR

Sustainable development has become a key focus for enterprises, especially amid financial crises and the COVID‑19 pandemic, prompting interest in how ESG performance influences listed companies’ market value. The study investigates how ESG performance affects market value through financial performance, employing linear regression and mediation models. The authors applied these models to ESG ratings of Chinese listed firms from 2014 to 2019 to analyze the relationships. Results show that higher ESG scores raise market value, with financial performance and operational capacity acting as mediators—particularly for state‑owned firms—and the study offers recommendations for regulators, firms, and investors.

Abstract

Abstract At present, more and more attention is paid to the sustainable development of enterprises. In particular, in the context of frequent financial crises and COVID‐19 pandemic, how the performance of listed companies' environmental, social, and governance (ESG) affects the company's market value has attracted widespread attention. Different from existing studies, this paper takes financial performance as a mediating variable and constructs linear regression model and mediating effect model based on analyzing the relationship between ESG performance, financial performance, and company market value and their influencing mechanism. The ESG rating data of Chinese listed companies newly developed by SynTao Green Finance from 2014 to 2019 were selected for empirical test. The results show that the improvement of ESG performance of listed companies can improve the market value of the company, and the financial performance of the company presents an obvious mediating effect. At the same time, operational capacity is an important mediating way for ESG performance to affect the company's market value. Further research shows that ESG performance of state‐owned listed companies exerts a stronger mediating effect on corporate operating capacity. Finally, this paper provides relevant suggestions for regulators, listed companies, and investors.