Does an optimal ESG score exist? Evidence from China

ABSTRACT

Utilizing the environment, social and governance (ESG) score database, this paper examines the impact of ESG rating on a firm’s financial performance for 438 listed firms in China over the period 2010 to 2020. Our investigation revealed some fresh insight into the presence of a non-monotonic relationship of a firm’s ESG score and its financial performance, which strengthens the idea of an optimal level of ESG score. Furthermore, the study has highlighted the governance-based considerations of international institutional investors regarding the Chinese stock market. Hence, the insights gained from this study may be of assistance to the firm’s management and investors in an emerging market.

KEYWORDS:

• ESG score
• financial performance
• optimal score
• emerging market
• China

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Nauman Amin

Nauman Amin is an assistant professor in Department of Finance at Institute of Business Administration (IBA), Karachi, where, he has taught courses both graduate and post graduate level courses related to corporate finance, investments and entrepreneurial finance. Besides academia, he also has a decade of corporate work experience. He got PhD from University of Birmingham, UK in 2018.

Sana Tauseef

Sana Tauseef is an Associate Professor in Department of Finance at Institute of Business Administration (IBA), Karachi. She has taught various courses including Corporate Finance and Financial Derivatives over the past fifteen years. She obtained CFA charter in 2012 and her Doctorate in Business Administration (DBA) from Grenoble Ecole de Management, France, in 2018. She is actively involved in case writing and empirical research. Her current research interest lies in the area of asset pricing and corporate finance with a special focus on growing importance of environmental, social and governance (ESG) factors.