Received: 13 November 2021 Revised: 19 March 2022 Accepted: 1 April 2022

DOI: 10.1002/bse.3089

RESEARCH ARTICLE

Sustainable development, ESG performance and company

market value: Mediating effect of financial performance

Guangyou Zhou1 | Lian Liu1 | Sumei Luo2

1
School of Economics, Fudan University,
Shanghai, 200433, China Abstract
2
School of Finance, Shanghai University of At present, more and more attention is paid to the sustainable development of enter-
Finance and Economics, Shanghai, 200433,
prises. In particular, in the context of frequent financial crises and COVID-19 pandemic,
China
how the performance of listed companies' environmental, social, and governance (ESG)
Correspondence
affects the company's market value has attracted widespread attention. Different from
Sumei Luo, Professor, PhD, School of Finance,
Shanghai University of Finance and existing studies, this paper takes financial performance as a mediating variable and con-
Economics, Shanghai 200433, China.
structs linear regression model and mediating effect model based on analyzing the rela-
Email: luosumei@shufe.edu.cn
tionship between ESG performance, financial performance, and company market value
Funding information
and their influencing mechanism. The ESG rating data of Chinese listed companies
Major Program of the National Social Science
Foundation of China, Grant/Award Number: newly developed by SynTao Green Finance from 2014 to 2019 were selected for
21&ZD117
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 com-
panies exerts a stronger mediating effect on corporate operating capacity. Finally, this
paper provides relevant suggestions for regulators, listed companies, and investors.

KEYWORDS
corporate social responsibility, ESG performance, financial performance, green finance, market
value, sustainable development

1 | I N T RO DU CT I O N Bwkiris, 2010; Petersen, 2009) studied the impact of three levels on

In recent years, policymakers and regulators around the world pay
more and more attention to the implementation of corporate environ-
mental governance and social responsibility. Research on environmen-
tal, social, and governance (ESG) has also become a hot topic, among
which the impact of ESG performance on corporate value has
attracted wide attention, and environmental performance (Hoepner
et al., 2020; Martin & Moser, 2016; Pekovic et al., 2018), social
responsibility performance (Albuquerque et al., 2019; Mishra &
Modi, 2013), and corporate governance performance (Drakos &
corporate value, and the results showed that the improvement of ESG
performance was conducive to the improvement of corporate market
value. At the same time, in the face of extreme risks (such as the finan-
cial crisis and the pandemic of COVID-19 global), the market value of
companies that perform well in ESG is relatively stable, and their stock
prices are more resilient (Broadstock et al., 2021; Lins et al., 2017).
In 2018, MSCI index and FTSE Russell Index announced the
expansion of A-shares, and international capital focusing on ESG
investment began to slowly enter China, which also led to the rise of
ESG investment concept in The Chinese capital market. However, is

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium,
provided the original work is properly cited.
© 2022 The Authors. Business Strategy and The Environment published by ERP Environment and John Wiley & Sons Ltd.

Bus Strat Env. 2022;31:3371–3387. wileyonlinelibrary.com/journal/bse 3371


3372
the investment concept based on ESG performance still valid in
China's capital market? If so, what is the intrinsic relationship between
ESG performance and the value attributes of the company itself?
What will happen when environmental governance, social responsibil-
ity, and corporate governance are no longer separated from each
other and their relationship to financial performance and market value
is studied? Under the background that domestic and international cap-
ital pay more and more attention to enterprise ESG performance dis-
closure, these have become urgent problems to be solved.
However, few studies have focused on the relationship between
ESG performance, financial performance, and company market value at
the same time. Based on the theoretical model, this paper further applied
the mediation effect empirical method. This paper explores the relation-
ship among ESG performance, financial performance, and market value
of listed companies and the mediating effect of financial performance in
the way that ESG performance affects the market value of companies.
The innovation of this paper mainly includes the following aspects:
(1) The company's financial performance is introduced into the analysis
framework of the impact of ESG performance on the market value of
listed companies as an intermediary variable. By constructing linear
regression model and mediating effect model, this paper examines the
impact of ESG performance on the market value of a company and its
transmission mechanism from several different aspects such as profit-
ability, operating capacity, and growth capacity. (2) In this paper, the
ESG rating newly developed by SynTao Green Finance in the Wind
database is converted to assign values, and a complete data index that
can reflect the ESG performance of listed companies is constructed.
(3) On the basis of exploring the relationship among ESG performance,
financial performance, and market value of the company, the research
objects are further divided into polluting enterprises and non-polluting
enterprises, which makes the research results more detailed, more
targeted, and more instructive to the reality.
The structure of the rest part of this paper is as follows: The sec-
ond part is literature review and research hypothesis, combing domes-
tic and foreign literature from ESG performance and financial
performance, ESG performance and company market value, and finan-
cial performance and company market value, and putting forward
research hypothesis on this basis. The third part is the research
design, including data description, variable selection, and econometric
model establishment. The fourth part is the analysis of test results.
The fifth part is the conclusion and enlightenment.
2 | L I T E R A T U RE R E V I E W A N D R E S E A R C H
HYPOTHESIS
2.1 | ESG performance and company market value
2.1.1 | Environmental performance and company
market value
First of all, from the perspective of environmental performance, for-
eign studies on the impact of environmental performance on
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ZHOU ET AL.
enterprise value are relatively sufficient, and the early studies are
mainly based on the traditional cost school view, which holds that
environmental performance and enterprise value are mutually incom-
patible. Typical studies such as Al-Tuwaijri et al. (2004) point out that
corporate environmental performance will reduce investors' evalua-
tion of enterprises and affect corporate value, and it has nothing to do
with financial indicators of corporate profitability. Until people expand
from short-term effect to long-term effect, the conclusion changes
when Tobin's Q (TBQ) value is introduced as a measure of the long-
term market value of the company. The empirical analysis of Earnhart
and Lizal (2007) and many other scholars shows that environmental
performance has a positive impact on corporate value measured by
TBQ value. Nakamura (2011) found through the study of Japanese
companies that environment-related investment can significantly
increase corporate value in the long run. Martin and Moser (2016)
found in their study that investors would react more positively if a
company actively disclosed its effect on environmental governance
rather than the cost of investment. In addition, when Pekovic
et al. (2018) studied the impact of environmental performance on
enterprise market value by taking some listed companies in France as
samples, they found an inverted U-shaped relationship, indicating that
improving environmental performance to a certain extent can increase
enterprise value, while exceeding this limit will have the opposite
effect. The research of Hoepner et al. (2020) shows that companies
that take an active role in ESG/corporate social responsibility (CSR),
especially those that attach importance to the environment, can
reduce their downward risks in a crisis. Gerged et al. (2021) examine
the association between corporate environmental disclosure (CED)
and firm value (FV) in the Gulf Cooperation Council (GCC) countries,
where CED has been increasing from its previous low base. Findings
from a multicountry sample of 500 firm-year observations using a
55-item unweighted environmental disclosure index suggest that CED
is significantly and positively related to FV as measured by TBQ.
2.1.2 | Social responsibility performance and
company market value
The existing research on CSR performance and corporate market
value is mainly based on the theory of stakeholders. Since
Moskowitz (1972) first explored the relationship between the two
through empirical research, there has been not universally recognized
and consistent conclusion. Cochran and Wood (1984) empirically
studied the relationship between CSR and corporate value and found
that CSR performance was significantly positively correlated with
market value. Chen et al. (2001) verified the inhibitory effect of
CSR/ESG performance on the downside risk of stock price by describ-
ing the asymmetry of stock return distribution. Mishra and
Modi (2013) use empirical analysis to verify that good CSR can help
reduce non-systemic risks. Mervelskemper and Streit's (2017) results
indicate that ESG performance is valued more strongly and in the
(desired) positive direction when firms publish an ESG report,
irrespective of its type (stand-alone or integrated). Fatemi et al. (2018)

ZHOU ET AL.
find that ESG strengths increase FV and that weaknesses decrease
it. ESG disclosure, per se, decreases valuation. But more importantly,
we find that disclosure plays a crucial moderating role by mitigating
the negative effect of weaknesses and attenuating the positive effect
of strengths. According to the research results of Albuquerque
et al. (2019), when a company increases product differentiation
through social responsibility investment, the higher the social respon-
sibility investment, the lower the systemic risk of the company and
the higher the value of the company. Qureshi et al. (2019) observe a
positive impact of sustainability disclosure and board gender diversity
on FV, suggesting that the best management practices, enhanced
stakeholder trust, and female representation on boards improve
FV. We observe that the firms in sensitive industries achieve superior
social and governance performance.
2.1.3 | Corporate governance performance and
corporate market value
Corporate governance includes many aspects, such as corporate orga-
nizational structure, ownership structure design, board governance,
and executive compensation, etc. Relevant researches at home and
abroad have comprehensively covered these aspects. Among them,
more attention is paid to the company's equity structure and board
structure. Kyle and Vila (1991) found in his study that if the chairman
of the board of directors of a company concurrently served as a senior
management officer of the company, it would have a negative impact
on the company's operation and ultimately damage the company's
market value. Through empirical research, Karamanou and
Vafeas (2005) and Petersen (2009) respectively found that a high
shareholding ratio of major shareholders would damage the interests
of minority shareholders, thus damaging the market value of the com-
pany. This conclusion also has extremely important guiding signifi-
cance for the ownership structure of listed companies in China.
Drakos and Bwkiris (2010) studied some Greek listed companies and
found that management shareholding had a significant positive impact
on the company's market value. Nekhili et al. (2019) examine the
extent to which the appointment of employees to the board of direc-
tors influences market perceptions of ESG performance. Research
finds that investors react positively to ESG performance but nega-
tively to the presence of employees on the board. In Ionescu
et al. (2019), the impact of extra-financial ESG performance on market
value of the companies was estimated based on a sample of 73 listed
companies, worldwide distributed, during the 2010–2015 period. The
overall results are consistent with the value enhancing theory
(as opposed with the shareholder expense theory). From the ESG fac-
tors, the governance factor seems to have the most important influ-
ence on the market value of the selected companies, regardless of the
geographic region where they are located. Nekhili et al.'s (2021) find-
ings reveal that labor board representatives act in the opposite direc-
tion to employee shareholder board representatives by focusing
exclusively on improving social performance and reducing environ-
mental and corporate governance performance. The way employees
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3373
are represented on the board of directors also moderates the corpo-
rate ESG financial performance relationship differently.
Based on the above theories, this paper proposes the following
hypotheses:
Hypothesis H1 : The improvement of ESG performance is conducive
to enhancing the company's market value.
2.2 | ESG performance and financial performance
In the existing studies, most literatures focus on one aspect of ESG
performance, such as environmental performance, social responsibility
performance, or corporate governance performance, while few litera-
tures study the relationship between the three as a whole of ESG per-
formance and financial performance. Therefore, relevant researches
mainly focus on the following three aspects:
2.2.1 | Environmental performance and financial
performance
Most studies on the relationship between corporate environmental
performance and financial performance show that they are positively
correlated. Most theoretical analyses believe that enterprises' behav-
ior of improving environmental performance can improve their own
image and gain high social recognition, thus gaining favor from
upstream and downstream enterprises of the supply chain in the pro-
cess of enterprise operation, and thus improving their financial
performance.
The research on the relationship between environmental perfor-
mance and financial performance has a long history. In these studies,
the correlation between environmental performance and financial per-
formance was obtained through empirical studies from different per-
spectives, different empirical models, and different indicators of
environmental performance and financial performance. Typical studies
include the following: Feldman (1997), from the perspective of envi-
ronmental control, concluded that the strengthening of environmental
control can improve the operating efficiency of the company without
increasing the cost of environmental management, so as to improve
the financial performance of the company. Telle (2006) mainly started
with pollutants as an environmental performance indicator and
pointed out that under the same conditions, enterprises with less pol-
lutant emissions would have better financial performance. Through
empirical study, Sharfman and Fernando (2008) found that enter-
prises' prevention of environmental risks can effectively reduce the
debt cost of enterprises and thus improve their financial performance.
Iwata and Okada (2011) used the data of Japanese manufacturing
enterprises from 2004 to 2008 to investigate the impact of environ-
mental performance on financial performance. The estimation results
show that different environmental performance has different effects
on financial performance. Waste discharges do not generally have a
material impact on financial results. On the other hand, greenhouse

3374
gas (GHG) emission reduction leads to an improvement in the financial
performance of the entire sample and clean industries but has no sig-
nificant impact on the financial performance of polluting industries.
Lahouel et al. (2020) employ the panel smooth transition regression
model to explore the nonlinear relationship between environmental
performance and financial performance. Using a panel of 61 French
companies from 2005 to 2017, our results show an inverted-U rela-
tionship and an inverted-V relationship when TBQ and return of
assets (ROA) are respectively used.
However, a few studies believe that the relationship between
environmental performance and corporate financial performance
(CFP) is negatively correlated. The main theoretical explanation is that
environmental problems increase the management cost of enterprises
and reduce CFP. Typical studies, for example, Stanwick (1998), found
through empirical analysis that the profitability measured by return on
total assets is positively correlated with the amount of pollution dis-
charged by the company; that is, there is a certain negative correlation
between environmental performance and financial performance.
Horváthová's (2010) research results suggest both that the empirical
method used matters for the nexus and that the likelihood of finding a
negative link between environmental and financial performance signif-
icantly increases when using simple correlation coefficients instead of
more advanced econometric analysis.
2.2.2 | Social responsibility performance and
financial performance
The research on whether CSR can improve financial performance has
always been a hot topic. Similar to the research on environmental per-
formance, most of the research views are positively correlated, a few are
negatively correlated, and a few are irrelevant or conditional correlated.
Typical studies with positive correlation include the following:
Inoue and Lee (2010) divided CSR performance into employee rela-
tions, community relations, and diversity and found that all these five
aspects had a significant positive impact on CFP through the study of
367 tourism enterprises. Mallin et al. (2014) took 90 banks in
13 Islamic countries as research objects and proved that CSR perfor-
mance had a significant positive impact on CFP owners represented
by return on total assets. Maqbool and Zameer's (2018) results indi-
cate that CSR exerts positive impact on financial performance of the
Indian banks. The finding of this study provides great insights for man-
agement, to integrate the CSR with strategic intent of the business
and renovate their business philosophy from traditional profit-
oriented to socially responsible approach. Lin et al. (2019) study found
that better financial performance of firms lead to a better CSR
engagement and better CSR need not necessarily lead to superior
CFP. Pekovic and Vogt's (2021) findings indicate that while board size
and gender diversity moderate the CSR-firm's financial performance
link positively, CSR interacting with ownership concentration nega-
tively impacts a firm's financial performance.
Negative correlation studies are generally based on stakeholder
theory and agency theory. The school represented by Friedman points
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ZHOU ET AL.
out that enterprises need to pay a certain low return price to improve
their CSR performance, which is not in line with the private interests
of senior managers, so it conflicts with business activities that can
improve their financial performance. McWilliams and Siegel (2000)
pointed out that the fulfillment of CSR would hinder free market com-
petition and negatively affect the company's investment in other
aspects except social responsibility, thus worsening its financial
performance.
2.2.3 | Corporate governance performance and
financial performance
Corporate governance includes organizational structure, ownership
structure design, board governance, and executive compensation.
Holderness et al. (1999) studied the “corporate governance crises” in
Western countries in the 1980s and found that the ownership struc-
ture of a company is highly correlated with the financial performance
of a company and the concentration of ownership can significantly
affect the financial performance of a company. From the perspective
of board independence, Lefort and Urzua (2008) found that the more
independent the board, the better the financial performance of the
company. Xie et al. (2019) applied data envelopment analysis to esti-
mate corporate efficiency and investigated the nonlinear relationship
between corporate efficiency and ESG disclosure. Evidence shows
that corporate transparency regarding ESG information has a positive
association with corporate efficiency at the moderate disclosure level,
rather than at the high or low disclosure level. Governance informa-
tion disclosure has the strongest positive linkage with corporate effi-
ciency, followed by social and environmental information disclosure.
Velte (2017) finds that ESG performance has a positive impact on
ROA but no impact on TBQ. Furthermore, by analyzing the three dif-
ferent components of ESG performance, corporate governance per-
formance has the strongest impact on financial performance in
comparison to environmental and social performance. Tampakoudis
and Anagnostopoulou (2020) explore the effect of ESG performance
on market value and performance in the context of mergers and
acquisitions and examine whether acquisition of targets with better
ESG performance can help acquirers to increase their own ESG per-
formance and whether the market values the increased ESG perfor-
mance positively.
From the theoretical level, there are several theories that ESG
performance influences financial performance: First is the theory of
sustainable development. In order to achieve sustainable develop-
ment, the enterprise strives to increase the level of green environ-
mental protection management and pay attention to ESG
performance management, so that the enterprise can grow in a
healthy and benign way and improve its financial performance. One of
the most direct possible ways is for enterprises to invest in technolog-
ical innovation related to pollution control and adopt environmental
protection strategies. This effectively reduces the pollutants dis-
charged by enterprises and improves the production efficiency, thus
strengthening the market competitiveness of products and enhancing

ZHOU ET AL.
the market share, which is ultimately reflected in the improvement of
the financial performance of enterprises. The other is resource-based
theory. There are similarities between resource-based theory and sus-
tainable development theory. This theory points out that enterprises
have various forms of resources and capabilities, which are the funda-
mental reason for enterprises to maintain lasting competitive advan-
tages (Wernerfelt, 1984). For example, in terms of environment, in the
face of environmental pressure, enterprises' input in environmental
management and new environmental protection technologies is an
important resource for enterprises to gain competitive advantages,
while financial performance is a key result of resource output (Russo
& Fouts, 1997). Resource-based theory intuitively explains that ESG
performance as a resource can improve the company's output and
bring good financial performance to the company, as well as reduce
the probability of environmental accidents such as pollution. Third is
information asymmetry theory. On the premise of sustainable devel-
opment theory and resource-based theory, asymmetric information
theory further explains the positive impact of ESG performance on
financial performance. Porter and Vanderlinde (1995) demonstrated
the environmental performance and believed that the environmental
performance of an enterprise was a valuable resource that could not
be imitated. It met the expectation of the public and society, so it was
conducive to expanding the operating income and profit of the enter-
prise and finally realizing the win–win situation of environmental pro-
tection and competitiveness of the enterprise.
To sum up, this paper subdivides financial performance into prof-
itability, operating capacity and growth capacity, thus proposing the
second set of research assumptions:
Hypothesis H2a : The improvement of ESG performance is conducive
to the improvement of profitability.
Hypothesis H2b : The improvement of ESG performance is conducive
to the improvement of operational capacity.
Hypothesis H2c : The improvement of ESG performance is conducive
to enhancing growth capacity.
2.3 | Financial performance and company market
value
For a long time, research on the relationship between financial perfor-
mance and market value of listed companies has been concerned.
From different perspectives, scholars have conducted a comprehen-
sive empirical analysis of profitability, operational ability, and develop-
ment ability in financial performance, providing a systematic reference
for future research. The classification of financial indicators mainly
includes four aspects: profitability, operating capacity, solvency, and
development capacity. As for the measurement of market value, some
scholars directly use stock price or current market value, and more
scholars use TBQ as a stable index to measure market value
(Wernerfelt & Montgomery, 1988).
Since profitability is the core of an enterprise, there are many
research on profitability and corporate value. The earliest study was
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3375
the regression analysis by Ball and Brown (1968) on the profitability
indicators of some companies listed on the New York Stock Exchange
and their stock prices over a period of time, and the study found that
the two are highly correlated. Further, Beaver et al. (1979) compared
the correlation between these indicators of profitability and stock
price with that of operating cash flow and stock price and found that
the former was more correlated than the latter. On the basis of this
result, Bernard and Stober (1989) found that the correlation between
corporate value and profitability was higher for companies with long
business cycles and companies in the growth stage. In addition, Barth
et al. (2001) found that both book value and net income of assets and
liabilities are factors influencing market value, and assets are posi-
tively correlated with market value, while liabilities are negatively cor-
related with market value.
From the theoretical level, there are two main theories that
financial performance affects the company's market value: One is
absolute valuation theory, and the other is relative valuation theory.
Absolute valuation theory is the most accurate theory to estimate
the intrinsic value of a company, but it is not as practical as relative
valuation theory due to the fact that indicators such as discount rate
cannot be predicted exactly and there are many factors to be consid-
ered and the model is complicated. In short, for listed companies,
regularly available financial performance data allow people to use
these valuation theories to calculate the intrinsic value of the com-
pany. The second is the efficient market hypothesis. Fama (1970) for-
mally proposed the efficient markets hypothesis, arguing that in a
capital market with perfect institutions in all aspects and smart and
rational investors, all valuable information has been fully reflected in
the current stock price of a company. It is impossible for anyone to
make excessive profits by analyzing this information. In other words,
the intrinsic value of all investors calculated by absolute or relative
valuation theory is equal to market value. Therefore, no matter in
developed markets or emerging markets, the market value of a com-
pany is significantly positively correlated with its financial perfor-
mance represented by profitability.
Based on the above analysis, we believe that ESG performance,
supported by sustainable development theory and resource-based
theory, may have a positive impact on CFP, which is further strength-
ened in signal transmission theory. Based on financial performance,
investors calculate the intrinsic value of a company through absolute
or relative valuation theory. Finally, under the guidance of “weak effi-
cient market hypothesis,” they promote the regression of market
value through long-short behavior. ESG performance ultimately
affects the company's market value through a series of ways, while
financial performance can be regarded as an intermediary variable of
ESG performance affecting the company's market value in the whole
process, as shown in Figure 1 for the specific process.
Based on the above logical deduction and based on the classifica-
tion of the second set of hypotheses, the third set of hypotheses is
further proposed:
Hypothesis H3a : Profitability is one of the ways ESG performance
affects the market value of the firm.

3376
Hypothesis H3b : Operational capability is one of the ways that ESG's
performance affects a firm's market value.
Hypothesis H3c : The ability to grow is one of the ways that ESG per-
formance affects the market value of the firm.
To sum up, the existing research has made breakthroughs in many
aspects and achieved many valuable results, which are also the impor-
tant basis of this project research. However, the existing research still
has the following shortcomings: First, most of them only focus on a
certain aspect of ESG performance, rather than comprehensive con-
sideration; second, many studies focus on the relationship between
ESG performance, CFP, and market value, but do not explore how
ESG performance affects corporate value, and whether CFP plays a
mediating role in this process is basically not involved. Therefore, this
paper will carry out research from the following three aspects: First,
through theoretical analysis, discuss the ways that ESG performance
of listed companies affects the company's financial performance and
the way that the company's financial performance affects the comp-
any's market value. From the capital market signal transmission the-
ory, sustainable growth theory, and other aspects of in-depth and
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ZHOU ET AL.
F I G U R E 1 The mediating role and
transmission mechanism of financial performance
detailed analysis, discuss the listed company ESG performance impact
on the company's market value of the possible financial performance
path. Second, the company's financial performance is systematically
divided into profitability index, operation ability index, and growth
ability index and so on to construct reasonable intermediary variables,
respectively. Through the empirical analysis of the mediating effect
model, this paper discusses whether the ESG performance of listed
companies will affect the market value of the company, what kind of
financial performance will play a mediating role, and the degree of the
mediating role. The third is to construct the FINANCIAL performance
oriented ESG performance management method based on the conclu-
sions of theoretical and empirical analysis, and put forward practical
suggestions from the government, enterprises, and investors.
3 | STUDY DESIGN
In order to further test ESG performance, financial performance, and
the relations between and among the company's market value, we
select the relevant data of listed companies, select the relevant

ZHOU ET AL.
indicators, construct an empirical model, whether there is the relation-
ship between test three, and verify whether the financial performance
in ESG performance influence a company's market value plays an
intermediary role in the way.
3.1 | Sample selection and data sources
In view of the actual situation in China and the availability of ESG rat-
ing data, this paper adopts the ESG rating data developed by SynTao
Green Finance, which can be obtained from Wind database, as the
data to measure the ESG performance of listed companies.
This paper selects the data of some listed companies in Shanghai
and Shenzhen A-share markets from 2014 to 2018 as samples. These
listed companies normally released their annual financial information
during the selected period, circulated normally in the A-share market
and became the ESG rating object tracked by SynTao Green Finance.
In order to make the research results more accurate, the following
measures are taken to further screen the samples of these listed
companies:
1. Remove companies with “special treatment” or “delisting warning”
(ST, *ST).
2. Eliminate the samples with missing data. After the above screen-
ing, a total of 835 valid data sets were obtained for
167 companies.
Amid these, the relevant data to measure the ESG performance
of enterprises comes from the ESG rating data of A-share listed
companies developed by SynTao Green Finance in the Wind data-
base. TBQ data of listed companies over the years came from
CSMAR database. Financial or other data of listed companies mainly
come from Wind financial terminal. Excel software was used to
screen and standardize the relevant raw data in this paper, and
Stata14.0 software was used to complete the regression and test of
the relevant models.
3.2 | Variable design
3.2.1 | Explained variable: Market value of the
company
The market value of a company is measured by TBQ. TBQ value is the
ratio of an enterprise's stock market value to its total replacement
cost. TBQ value (TBQ) = (year-end market value of tradable shares +
year-end market value of non-tradable shares + year-end market
value of net liabilities)/year-end total assets, as defined in the GTAI
database. This definition fully reflects the expectations of investors
such as equity owners and creditors on the value of the company's
overall assets and is an effective method to measure the market value
of a company.
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3377
3.2.2 | Explanatory variable: ESG performance
This paper selects the ESG rating system of A-share listed companies
published by SynTao Green Finance in 2020 and quantifies the rating
into corresponding numerical grades as A variable of ESG perfor-
mance. SynTao Green Finance conducts its own evaluation based on
esG-related information such as social responsibility reports disclosed
by enterprises and in comparison with relevant international and
domestic rules, standards, and best practices. The evaluation results
were then weighted according to the substantive factors of ESG in
different industries, and the ESG rating was finally divided into
10 grades: D, C
, C, C+, B
, B, B+, A
, A, and A+. Referring to the
investment grade and non-investment grade rating methods of Stan-
dard & Poor's and Moody's, this paper quantifies the ESG perfor-
mance of companies with a rating of B+ or above as 1, indicating that
they have a better ESG performance. The rest of the rating B and
below are quantified as 0, indicating enterprises with poor ESG
performance.
3.2.3 | Mediating variable: Financial performance
Financial performance is divided into profitability index, operating
ability index, and growth ability index by type. Financial performance
is divided into profitability indicators, operational indicators, growth
indicators, and solvency indicators. Among them, solvency refers to
the bearing capacity or guarantee degree of an enterprise to repay
maturing debts, which has little relation with ESG index, so it is no
longer considered in this paper. According to existing studies, we
select the most commonly used return on equity (ROE), total asset
turnover (TAT) and net profit growth (Growth) of listed companies as
the corresponding financial performance indicators.
Return on equity is the percentage of net profit to average share-
holders' equity, which is used to measure the efficiency with which a
company uses its own capital. This index reflects the ability to obtain
net income of own capital. The higher the index value, the higher the
return on investment. Total asset turnover ratio is the ratio of sales
revenue and average total assets of an enterprise in a certain period,
which has good applicability to companies in most industries. It
reflects the efficiency of all assets of an enterprise in this period from
investment to economic benefit. The higher the total asset turnover
ratio is, the stronger the operating capacity of the enterprise is. Net
profit growth rate is to point to the enterprise current net profit than
the growth range of the previous period net profit, the larger the
index value represents the enterprise growth ability is stronger.
3.2.4 | Control variables
Referring to previous studies, we selected company size (Size) and
financial leverage (Lev) as control variables. In previous studies on the
correlation between internal attributes of enterprises, firm size is an

3378
essential control variable to be considered. Because the larger the
company is, the more obvious the scale effect will be, and the more
sensitive the enterprise may be to improve its financial performance
through corporate governance and other means. Therefore, for com-
panies of significantly different sizes, their willingness to manage ESG
performance and the economic results can be significantly different.
Based on this, we take company size as one of the control variables.
Financial leverage, also known as financing leverage, reflects the
extent to which a company uses debt financing tools. We use leverage
as a measure of financial leverage, measured by the ratio of a comp-
any's average annual total liabilities to its average annual total assets.
For companies using different financial leverage, their business strate-
gies and risk preferences will vary, so the management style of ESG
performance may also be different. Based on this, we also take
finance as one of the control variables.
Ownership concentration (Top1) refers to the quantitative index
of ownership concentration or dispersion shown by all shareholders
due to their different shareholding proportions. Ownership concentra-
tion is the main index to measure the state of ownership distribution
of a company, as well as the stability of the company and the struc-
ture of the company. It is influenced by the size of the firm, the per-
formance of the firm, the control preference of the owner, and the
political power. In this paper, the shareholding ratio of the largest
shareholder is used to measure.
The ratio of cash to total assets (CF) refers to the ratio of cash
assets to current assets. Cash assets include cash, interbank deposits,
and central bank deposits. Liquid assets are also called reserve assets,
including cash assets and short-term securities. The higher the cash
assets ratio is, the higher the liquidity of the bank is and the higher
the protection degree for creditors is. This paper is measured by cur-
rent net cash flow/year-end total assets.
TABLE 1 Selection and definition of variables
Variable types Variable name
Explained variable The market value
Explanatory variables ESG performance
a
Intervening variable Return on equity
Total asset turnover
Net profit growth rate
Control variables Company scale
Financial leverage
Ownership concentration
Ratio of total cash assets
GDP per capita
a
When studying one of the three factors, return on total assets, turnover of total assets, and net profit growth rate, the other two are used as control
variables.
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ZHOU ET AL.
It should be noted that when the return on total assets index is
used as an intermediary variable in the study, the total asset turnover
rate and net profit growth rate to be studied are also likely to have an
impact on the explanatory variable and the explained variable, so they
should also be used as control variables. Similarly, when the total asset
turnover rate is used as a mediating variable, the rate of return on
total assets and the growth rate of net profit are used as control vari-
ables; when the growth rate of net profit is used as a mediating vari-
able, the rate of return on total assets and the total asset turnover
rate are used as control variables.
In addition, considering that the market value of enterprises mea-
sured by TBQ will be affected by the overall economic situation, the
economic situation variable (per capita gross domestic product [GDP])
is added as a control variable. It's measured by total GDP output
divided by total population.
Specific variable selection and definition are shown in Table 1.
3.3 | Model building
In order to test the hypotheses proposed above, this paper firstly
establishes the relationship models of the impact of ESG perfor-
mance on financial performance and corporate market value respec-
tively. Then, following the three-step method proposed by Baron
and Kenny (1986) to test the mediating effect, financial perfor-
mance variables were added into the latter model, and the changes
of regression results were observed again to verify the mediating
effect. The financial performance of this paper mainly includes three
aspects: profitability, operation ability, and growth ability. Therefore,
three groups of corresponding models were divided into empirical
tests.
Variable code Variable definitions
TBQ Market value of tradable shares at year-end + market
value of non-tradable shares at year-end + market
value of net liabilities at year-end)/total assets at
year-end
ESG Converted by the company's ESG rating
ROE Net profit/common stockholders' equity
TAT Net operating income/total average assets
Growth Net profit growth/net profit of last year
Size The natural logarithm of a company's average annual
total assets
Lev Average annual total liabilities/average annual total
assets
Top1 Shareholding ratio of the largest shareholder
CF Current net cash flow/total assets at year-end
gdp Total output/total population

ZHOU ET AL.
3.3.1 | Performance, profitability, and company
market value
First, the model of the impact of ESG performance on the company's
market value is constructed:
TBQit ¼ α10 þ α11 ESGit þ α12 Sizeit þ α13 Levit þ α14 TAT it
þα15 Growthit þ α16 Top1it þ α17 CFit þ α18 gdpit þ ε1it ,
where is the TBQit value of company i in year T, α10 is a constant term
and ε1it is a residual term, and α11 represents the influence coefficient
of ESG performance on company value; α12–α18 represent the influ-
ence coefficient of each control variable on company value. If α11 is
significantly positive, then the hypothesis H1 is verified; that is, the
improvement of ESG performance is conducive to enhancing the
company's market value.
Second, the model of the impact of ESG performance on profit-
ability is constructed:
ROEit ¼ α20 þ α21 ESGit þ α22 Sizeit þ α23 Levit þ α24 TAT it
þα25 Growthit þ α26 Top1it þ α27 CFit þ α28 gdpit þ ε2it ,
where ROAit is the return on total assets of company i in year t, α20 is
a constant term, ε1it is a residual term, α21 represents the influence
coefficient of ESG performance on profitability, and α22–α28 represent
the influence coefficient of each control variable on profitability. If α21
is significantly positive, then the hypothesis H2a is verified, that is, the
improvement of ESG performance is conducive to the improvement
of profitability.
Finally, a test model of the mediating effect of profitability is
constructed:
TBQit ¼ α30 þ α31 ESGit þ α32 ROEit þ α33 Sizeit þ α34 Levit
þα35 TAT it þ α36 Growthit þ α37 Top1it þ α38 CFit þ α39 gdpit þ ε3it ,
ð3Þ
where TBQit is the TBQ value of company i in year t, ROAit is the
return on total assets of company i in year t, α30 is a constant term,
ε3it is a residual term, and α33–α39 represent the influence coefficient
of control variables (Size, Lev, TAT, Growth) on profitability. Model
(3) puts ESG performance, profitability, and corporate market value in
the same research framework, and together with Models (2) and (1), it
is used to verify the mediating effect of profitability on the mecha-
nism of ESG performance on corporate market value.
As shown in the model, if ESG performance is proven to have a
significant impact on the company's market value and ESG perfor-
mance is found to affect the company's value by affecting profitabil-
ity, then profitability is called a mediating variable. If this result is
verified by the model, it indicates that profitability has a significant
mediating effect. Referring to the testing methods and steps of the
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3379
mediating effect model in the study of Baron and Kenny (1986), the
testing steps of the mediating effect of profitability in this paper are
as follows:
First, Model (1) is used for regression analysis of ESG perfor-
mance and the company's market value to test whether the regres-
sion coefficient α11 is significant. If so, the next step will be taken; if
ð1Þ not, the test will be stopped. Then, Model (2) is used for regression
analysis of ESG performance and profitability. If the regression coeffi-
cient α21 is significant, it indicates that ESG performance can indeed
affect profitability; if not, the test is stopped. Finally, as shown in
Model (3), the profitability variable is added into Model (1). If under
the new model, the coefficient of ESG performance is still significant
while the coefficient of profitability variable α32 is significant, and
decreases relative to the coefficient α11 , it indicates that there is a
partial mediation effect. If the coefficient of the profitability
variable α32 is significant but the coefficient of the ESG performance
variable α31 becomes insignificant, then there is a complete mediating
effect. Thus, we test the hypothesis H3a that profitability is one
of the ways that ESG performance affects the company's market
value.
ð2Þ
3.3.2 | ESG performance, operational capability,
and company market value
Similar to the previous section, the positions of variables of total asset
turnover and total asset return rate in the previous section are
swapped to construct the mediation effect model based on panel
data:
TBQit ¼ β10 þ β11 ESGit þ β12 Sizeit þ β13 Levit þ β14 ROEit ð4Þ
þβ15 Growthit þ β16 Top1it þ β17 CFit þ β18 gdpit þ ϵ1it ,
TAT it ¼ β20 þ β21 ESGit þ β22 Sizeit þ β23 Lev it þ β24 ROEit ð5Þ
þβ25 Growthit þ β26 Top1it þ β27 CFit þ β28 gdpit þ ϵ2it ,
TBQit ¼ β30 þ β31 ESGit þ β32 TAT it þ β33 Sizeit þ β34 Lev it þ β35 ROEit ð6Þ
þβ36 Growthit þ β37 Top1it þ β38 CFit þ β39 gdpit þ ϵ3it ,
where TBQit is the TBQ value of company i in t, TAT it is the total asset
turnover of the company i in t, β10 , β20 , and β30 are constant terms
ϵ1it , ϵ2it , and ϵ3it are residual, β11 said ESG performance coefficient,
β21 represents the influence coefficient of ESG performance on TAT,
and β12–β39 represent the control variables influence coefficient of
the market value of the company. If the coefficient β11 is significantly
positive, the hypothesis H1 is verified; that is, the improvement of
ESG performance is conducive to enhancing the company's market
value. If the coefficient is β21 significantly positive, it verifies the
hypothesis H2b that the improvement of ESG performance is condu-
cive to the improvement of the company's operating capacity. The
inspection procedure is the same as the previous section.
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3380 ZHOU ET AL.

3.3.3 | Performance, ability to grow, and company 4 | RE SU LT S A N A L YS I S

market value
Similarly, the mediating effect model based on panel data is con-
structed by taking growth capacity as research variable and profitabil-
ity and operation capacity as control variables:
TBQit ¼ γ 10 þ γ 11 ESGit þ γ 12 Sizeit þ γ 13 Lev it þ γ 14 ROEit
þγ 15 Growthit þ γ 16 Top1it þ γ 17 CFit þ γ 18 gdpit þ θ1it ,
Growthit ¼ γ 20 þ γ 21 ESGit þ γ 22 Sizeit þ γ 23 Levit þ γ 24 ROEit
þγ 25 TAT it þ γ 26 Top1it þ γ 27 CFit þ γ 28 gdpit þ θ2it ,
TBQit ¼ γ 30 þ γ 31 ESGit þ γ 32 Growthit þ γ 33 Sizeit þ γ 34 Lev it
þγ 35 ROEit þ γ 36 TAT it þ γ 37 Top1it þ γ 38 CFit þ γ 39 gdpit þ θ3it :
ð9Þ
4.1 | Descriptive statistic
The descriptive statistical results are shown in Table 2. As can be seen
from Table 2, the mean value of ESG performance is 0.172, and the
standard deviation is 0.377. This indicates that the overall ESG perfor-
ð7Þ mance of these listed companies is not high and the distribution is rel-
atively concentrated. The mean of net profit growth rate is 36%, the
standard deviation is 2.366, which is more than 6 times of the mean,
the minimum value is
11.34, and the maximum value is 35.19. This
shows that the profit growth capacity of the selected part of the listed
companies, namely, the growth capacity, is quite different, which is
ð8Þ
related to the company's own situation and the cyclical industry in
which the company is located. The mean value of financial leverage is
58.8%, the standard deviation is 0.227, the minimum value is 0.0341,
and the maximum value is 0.945, which is nearly 30 times of the mini-
mum value, indicating that the financial leverage ratio of the selected
part of the listed companies is very different from each other.
4.2 | Correlation analysis

In the formula, TBQit is TBQ for firm i in year t. Growthit is the
net profit growth rate of company i in year t, and γ 10 , γ 20 , and γ 30 are
constant terms; θ1it , θ2it , and θ3it are the residual term, γ 11 represents
the influence coefficient of ESG performance on the company's mar-
ket value, γ 21 represents the influence coefficient of ESG performance
on net profit growth rate, and γ 12–γ 39 represents the influence coeffi-
cient of each control variable on the company's market value. If γ 11 is
significantly positive, the hypothesis H1 is verified; that is, the
improvement of ESG performance is conducive to enhancing the
company's market value. If γ 21 is significantly positive, it verifies
the hypothesis H2c that the improvement of ESG performance is
conducive to the improvement of the company's
capacity. The inspection procedure is the same as the previous
section.
When the independent variables in the model have strong
multicollinearity, it will affect the reliability of the analysis results of
the mediation effect model. Statistical methods to test
multicollinearity include Pearson correlation test and variance inflation
coefficient (VIF) test. This paper adopts Pearson correlation test to
test all variables in the model, and the test results are shown in
Table 3.
It can be seen from Table 3 that the absolute value of correlation
coefficient between variables is 0.635 at most. Statistically, it is gener-
ally believed that serious multicollinearity may occur only when the
correlation coefficient between independent variables exceeds 0.8.
growth Therefore, there is no serious multicollinearity problem among vari-
ables in the model constructed in this paper, and the model regression
analysis can be carried out in the next step.

TABLE 2 Descriptive statistics

Variables Variable code Sample size Mean value The standard deviation Minimum The maximum
ESG performance ESG 1002 0.172 0.377 0 1
Return on equity ROE 1002 13.22 10.03
46.10 133.1
Total asset turnover TAT 1002 0.544 0.468 0.0224 2.582
Net profit growth rate Growth 1002 0.360 2.366
11.34 35.19
The market value TBQ 1002 1.857 1.512 0.771 14.09
The enterprise scale Size 1002 10.14 7.239 1.776 31.00
Financial leverage Lev 1002 0.588 0.227 0.0341 0.945
Ownership concentration Top1 1002 0.373 0.165 0.0541 0.863
Ratio of total cash assets CF 1002 0.0162 0.0678
0.276 0.484
GDP per capita gdp 1002 10.95 0.145 10.75 11.16
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ZHOU ET AL. 3381

TABLE 3 Pearson correlation analysis

Variables ESG TBQ ROE TAT Growth Size Lev Top1 CF gdp
ESG 1
TBQ
0.175*** 1
ROE
0.138*** 0.333*** 1
TAT
0.062** 0.193*** 0.165*** 1
Growth
0.018 0.055* 0.112***
0.015 1
Size 0.184***
0.173***
0.087***
0.101***
0.023 1
Lev 0.132***
0.604***
0.132***
0.341*** 0.011 0.194*** 1
Top1
0.021
0.117***
0.034 0.180*** 0.000
0.011
0.112*** 1
CF
0.065** 0.135*** 0.209***
0.021 0.228***
0.043
0.036
0.037 1
gdp 0.210***
0.080**
0.119***
0.030
0.031 0.635***
0.009
0.078**
0.143*** 1

*Significant at the level of 10%,

**Significant at the level of 5%.
***Significant at the level of 1%.

T A B L E 4 Regression results of ESG

Model 1 Model 2 Model 3
performance, profitability, and the
company's market value Variables TBQ ROE TBQ
ESG 0.1046 (1.55305)
1.1522 (
1.49195) 0.1146* (1.67965)
ROE — — 0.0087 (1.02761)
TAT 1.0619*** (2.77608) 28.0483*** (5.63304) 0.8183*** (2.63044)
Growth 0.0179 (1.28906) 0.4123** (2.08941) 0.0144 (0.94686)
Size 0.0104*** (3.23708)
0.0063 (
0.19068) 0.0104*** (3.24349)
Lev
0.4047 (
0.62856) 19.2033 (1.43618)
0.5715 (
0.87883)
Top1
0.4387 (
0.79385)
3.7272 (
0.38637)
0.4063 (
0.74210)
CF 0.3204 (0.82904) 16.3800*** (3.73727) 0.1782 (0.42934)
Gdp
1.1299*** (
4.27749)
3.4473* (
1.75139)
1.1000*** (
4.13047)
Constant term 13.9197*** (4.51958) 25.6641 (1.06985) 13.6968*** (4.38086)
Sample size 1002 1002 1002
Fixed effects Yes Yes Yes

Note: The values in parentheses are standard error.

*Significant at the level of 10%,
**Significant at the level of 5%.
***Significant at the level of 1%.

4.3 | Regression analysis of the relationship
between ESG performance, financial performance, and
company market value
4.3.1 | ESG performance, profitability, and company
market value
First, Hausman test was used to select fixed effect model or random
effect model, as shown in Table 4. All the test results reject the null
hypothesis at the significance level of 1%, so the fixed-effect model
should be selected.
As can be seen from the regression results in Table 4, when prof-
itability is not used as a control variable, there is no significant
relationship between ESG performance and market value of the com-
pany. However, when profitability, operating capacity, and growth
capacity are also used as control variables, ESG performance of a
company is significantly positively correlated with market value, which
verifies the theoretical hypothesis H1 . As shown in Model (2), there is
no significant relationship between a company's ESG performance
and its profitability, thus rejecting the theoretical hypothesis H2a and
overturning the theoretical hypothesis H3a that the impact of a comp-
any's ESG performance on market value is not dependent on the
mediating role of its profitability.
It should be noted that SynTao Green Finance releases the rating
of the company's ESG performance of the previous year in the middle
of each year, so all the other variables in Models (1)–(3) are essentially
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3382 ZHOU ET AL.

one stage behind the ESG variables. This eliminates the possibility of
bidirectional causality when the ESG variable is the key explanatory
variable. On the other hand, we selected the TBQ value is at the end
of the current market and at the end of the sum of net debt divided
by the end of the definition of net assets is representative of the final
point of enterprise value, while the financial performance indicators
variable reflects the average ability of the whole year, so could not
exist two-way causal relationship between them. Therefore, the
regression results in Table 4 do not have endogeneity problems cau-
sed by causal inversion. On the other hand, the fixed effect model is
adopted in the regression of the model, which can partially solve the
endogeneity problem caused by omitted variables. In summary, the
regression results in Table 4 are valid.
4.3.2 | ESG performance, operational capability,
and company market value
Same as the test procedure in the previous section, Hausman test is
first used to select the fixed effect model or random effect model. See
Table 5 for the results. As can be seen from the regression results in
Table 5, the ESG performance of the company is significantly posi-
tively correlated with the market value of the company, thus verifying
the theoretical hypothesis H1 . In addition, there is a significant posi-
tive correlation between ESG performance and operating capacity,
which verifies the theoretical hypothesis H2b . When the two variables
of ESG performance and operating capacity of the company are put
into the same model (Model 6), the regression coefficients of ESG per-
formance and operating capacity are significant. This means that the
impact of the company's improvement of ESG performance on market
value is partly caused by operating capacity. The regression results
verify the theoretical hypothesis that operating capacity is an
important channel for the company's ESG performance to affect mar-
ket value.
4.3.3 | ESG performance, growth ability, and
company market value
First of all, the Hausman test was still used to select the fixed effect
model or the random effect model. The test results still rejected the
null hypothesis at the significance level of 1%, so the fixed effect
model was still selected, as shown in Table 6. As can be seen from the
regression results in Table 6, the ESG performance of the company is
significantly positively correlated with the market value of the com-
pany, thus verifying the theoretical hypothesis. However, the relation-
ship between ESG performance and growth ability in Model (8) is not
significant, so the theoretical hypothesis is denied; that is, the
improvement of ESG performance of a company cannot significantly
affect the growth ability of the company.
Based on the above empirical analysis results, it can be seen that
the improvement of ESG performance of listed companies is condu-
cive to the improvement of the company's operating capacity, but the
effect on the company's profitability and growth capacity is not obvi-
ous. The improvement of ESG performance of listed companies is
conducive to enhancing the market value of the company, and operat-
ing capacity is one of the important ways that ESG performance
affects the market value of the company.
4.4 | Robustness test
Therefore, in order to verify the robustness of the previous conclu-
sion, we replaced TBQ, which measures the company's market value,

T A B L E 5 Regression results of ESG

Model 4 Model 5 Model 6
performance, operating capacity, and
Variables TBQ TAT TBQ company market value
ESG 0.1316* (1.89430) 0.0627* (1.67340) 0.1146* (1.67965)
TAT — — 0.8183*** (2.63044)
ROE 0.0149 (1.60803) 0.0072*** (5.19551) 0.0087 (1.02761)
Growth 0.0134 (0.85804)
0.0071 (
1.21330) 0.0144 (0.94686)
Size 0.0111*** (3.40760)
0.0924*** (
7.75073) 0.0104*** (3.24349)
Lev
0.5703 (
0.84634)
0.0400 (
0.41038)
0.5715 (
0.87883)
Top1
0.5421 (
1.02671) 0.6742*** (7.66410)
0.4063 (
0.74210)
CF 0.1195 (0.28421)
0.4704** (
2.24234) 0.1782 (0.42934)
Gdp
1.1749*** (
4.27150) 4.2334*** (7.46503)
1.1000*** (
4.13047)
Constant term 14.9205*** (4.62179)
44.6288*** (
7.33836) 13.6968*** (4.38086)
Sample size 1002 1002 1002
Fixed effects Yes Yes Yes

Note: The values in parentheses are standard error.

*Significant at the level of 10%,
**Significant at the level of 5%.
***Significant at the level of 1%.
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ZHOU ET AL. 3383

T A B L E 6 Regression results of ESG

Model 7 Model 8 Model 9
performance, growth capacity, and the
company's market value Variables TBQ Growth TBQ
ESG 0.1134* (1.65681)
0.0805 (
0.28947) 0.1146* (1.67965)
Growth — — 0.0144 (0.94686)
ROE 0.0096 (1.14086) 0.0627** (2.40099) 0.0087 (1.02761)
TAT 0.8090** (2.60052)
0.6425 (
0.85399) 0.8183*** (2.63044)
Size 0.0103*** (3.23373)
0.0053 (
0.45344) 0.0104*** (3.24349)
Lev
0.5720 (
0.87376)
0.0350 (
0.01922)
0.5715 (
0.87883)
Top1
0.3712 (
0.68026) 2.4462 (1.18082)
0.4063 (
0.74210)
CF 0.2612 (0.59068) 5.7814** (2.55309) 0.1782 (0.42934)
gdp
1.0891*** (
4.08194) 0.7598 (1.27977)
1.1000*** (
4.13047)
Constant term 13.5624*** (4.33143)
9.3579 (
1.42619) 13.6968*** (4.38086)
Sample size 1002 1002 1002
Fixed effects Yes Yes Yes

Note: The values in parentheses are standard error.

*Significant at the level of 10%,
**Significant at the level of 5%.
***Significant at the level of 1%.

TABLE 7 Robustness test: Replace the explained variable

Model 10 Model 11 Model 12

Variables PB TAT PB
ESG 0.4209** (2.55379) 0.0627* (1.67340) 0.3736** (2.15043)
TAT — —
0.2540* (
1.72665)
ROE 0.1067*** (3.05765) 0.0072*** (5.19551) 0.1246*** (19.18799)
Growth 0.0368 (0.57548)
0.0071 (
1.21330) 0.0441 (1.63305)
Size 0.0270*** (4.30606)
0.0924*** (
7.75073)
0.8486*** (
14.93707)
Lev 7.6371*** (3.46883)
0.0400 (
0.41038) 0.1032 (0.22896)
Top1
1.3972 (
1.03454) 0.6742*** (7.66410)
0.2196 (
0.52425)
CF 1.3613* (1.77284)
0.4704** (
2.24234) 3.0624*** (3.14773)
gdp
3.2466*** (
6.06331) 4.2334*** (7.46503) 38.2159*** (14.17312)
Constant term 32.8709*** (5.14867)
44.6288*** (
7.33836)
403.2759*** (
13.95896)
Sample size 1002 1002 1002
Fixed effects Yes Yes Yes

Note: The values in parentheses are standard error.

*Significant at the level of 10%,
**Significant at the level of 5%.
***Significant at the level of 1%.

with PB valuation (data from Wind financial database), and conducted
regression on Models (4)–(6) again. The regression results are shown
in Table 7. As can be seen from Table 7, the mediating effect of oper-
ating capacity still exists, so the index selection of operating capacity
in this paper is robust.
4.5 | Further study
Generally, the driving factors for improving ESG of listed companies
with different property rights are different. Non-state-owned
enterprises, as relatively pure market participants, are mainly moti-
vated to improve ESG to obtain economic returns and pursue profit
maximization. In contrast, the ESG practices of state-owned enter-
prises are more concerned with institutional, policy factors, and social
repercussions. In addition, state-owned enterprises performance of
social responsibility is often regarded as their “duty,” and they face
higher public pressure and social expectation in terms of ESG perfor-
mance, which results in low market response to the improvement of
state-owned enterprises' ESG performance. Considering the differ-
ence of property rights, according to the nature of the actual
 3384

TABLE 8 Regression results of mediating effect of different enterprises' operating capacity

Non-state-owned enterprises State-owned enterprises

Model 4 Model 5 Model 6 Model 4 Model 5 Model 6

Variables TBQ TAT TBQ TBQ TAT TBQ

ESG 0.1986* (1.82413) 0.0336* (1.69107) 0.1669 (1.50708) 0.0201 (0.35913) 0.0113 (0.59570) 0.0133 (0.24162)
TAT — — 0.9426** (2.02614) — — 0.6030* (1.82659)
ROE 0.0204 (1.54972) 0.0075*** (11.20988) 0.0134 (1.12657) 0.0087 (1.23621) 0.0073*** (8.42672) 0.0044 (0.59016)
Growth 0.0261 (1.08260)
0.0015 (
0.73059) 0.0275 (1.19035)
0.0003 (
0.04738)
0.0008 (
0.34787) 0.0002 (0.02473)
Size 0.0162*** (2.80043) 0.0013 (1.55475) 0.0150*** (2.66065) 0.0067*** (2.86121) 0.0005 (0.59515) 0.0064*** (2.71366)
Lev
1.4704* (
1.70234) 0.0498 (0.51228)
1.5174* (
1.80069) 0.5302 (0.55080)
0.0409 (
0.39772) 0.5548 (0.58675)
Top1 0.1044 (0.11361)
0.3213** (
2.30851) 0.4072 (0.41551)
1.0999 (
1.51889) 0.0055 (0.04634)
1.1032 (
1.49685)
CF
0.3362 (
0.57464)
0.0969 (
1.45540)
0.2449 (
0.42224) 0.7282 (1.11780)
0.0433 (
0.53248) 0.7543 (1.18881)
gdp
1.5283*** (
3.93416)
0.1779*** (
3.96550)
1.3606*** (
3.62855)
0.7263** (
2.00202)
0.0013 (
0.03127)
0.7255** (
2.02746)
Constant term 19.1891*** (4.23494) 2.4302*** (4.89696) 16.8983*** (3.84114) 9.5112** (2.19077) 0.4930 (1.02490) 9.2139** (2.16341)
Sample size 528 528 528 474 474 474
Fixed effects Yes Yes Yes Yes Yes Yes

Note: The values in parentheses are standard error.

*Significant at the level of 10%,
**Significant at the level of 5%.
***Significant at the level of 1%.
ZHOU ET AL.

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ZHOU ET AL.
controller of enterprises, the samples are divided into state-owned
enterprises and non-state-owned enterprises. A total of 528 non-
state-funded companies and 474 state-funded companies were
obtained, and they were substituted into Models (4)–(6), respectively.
The test results are shown in Table 8.
It can be found from Table 8 that, first of all, different from the
results in Table 5, for the sample of listed companies with non-state-
owned background, the effect of ESG index on company value is no
longer significant when the ESG index and operating capacity index
are controlled at the same time. It can be seen that for the samples of
listed companies with non-state-owned assets, the impact of ESG
index on the company value is realized through the operating capacity
index, which is a typical complete intermediary effect.
Secondly, for enterprises with state-owned assets background,
the effect of ESG on corporate value is not significant. This may be
because, first of all, analysts and media pay less attention, and ESG
indicators add less to enterprises with state-owned assets. Secondly,
the degree of government intervention is high. Maintaining a good
relationship with the government can bring political resources, which
however will also produce more non-productive expenditures. Finally,
it is more convenient for state-owned enterprises to obtain support
from the government and state-owned banks, and the marginal effect
of ESG on obtaining relevant resources from the government and
state-owned banks is relatively low.
5 | C O N C L U S I O N A ND E N L I G H T E N M E N T
This paper theoretically analyzes the relationship between ESG perfor-
mance, financial performance, and the company's market value and
selects panel data of some A-share listed companies to conduct empiri-
cal research by using the mediation effect model. The results show that
(1) the improvement of ESG performance of listed companies is benefi-
cial to the improvement of the company's operating capacity, but has
no significant effect on the company's profitability and growth capac-
ity; (2) the improvement of ESG performance of listed companies is
conducive to enhancing the market value of the company, and operat-
ing capacity is one of the important mediating ways that ESG perfor-
mance affects the market value of the company. (3) Further research
shows that there is a complete mediation effect for listed companies
whose actual controller is not state-funded, while there is no mediation
effect for listed companies whose actual controller is state-funded. At
the same time, it also brings us the following enlightenment:
First of all, it is a necessary policy goal for policymakers and regu-
lators to attach more importance to ESG performance rating and
enhance enterprises' willingness to actively manage ESG. Secondly,
for enterprises, ESG performance management can bring benefits to
their own operation and maintenance of market value. Therefore,
enterprises should correct their past wrong views and actively main-
tain and improve their ESG performance. Finally, from the perspective
of investors, institutional investors, mainly asset management institu-
tions, should continue to explore the feasibility of investment strate-
gies based on ESG performance, strengthen the research, analysis,
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3385
and practice of ESG investment at the buying end, and strengthen the
development of related products based on ESG investment concept
at the sales end. For individual investors, with the improvement of
China's capital market information disclosure system, they can incor-
porate ESG information disclosed by companies and ESG rating into
their investment strategies, make full use of the ability and advantages
of ESG rating to select high-quality companies, and improve their own
assets' ability to resist risks and stabilize returns.
OR CID
Guangyou Zhou https://orcid.org/0000-0001-9466-1851
Sumei Luo https://orcid.org/0000-0001-6400-8093
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