ESG performance, institutional investors’ preference and financing constraints: Empirical evidence from China

Abstract

The purpose of this article is to determine whether the ESG (environmental, social, and governance) performance by Chinese listed companies affects their financing constraints. Based on panel data on 3400 listed companies in China from 2013 to 2020, we find that good ESG performance by listed companies not only directly reduces their financing constraints but also encourages institutional investors to increase their shares, thereby conveying positive signals to the market and helping enterprises reduce their financing constraints. However, in primary industry, enterprises’ ESG performance in terms of reducing financing constraints at listed companies is not obvious. In addition, this study provides evidence that institutional investors have ESG investment preferences, and this preference is more significant at non-state-owned listed companies and listed companies in secondary and tertiary industries.