How ESG Performance Affects Enterprise Total Factor Productivity: The Moderating Role of Regional and Corporate-Level Innovation Capacity
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Abstract
ESG (environmental, social, and governance) is critical to high-quality enterprise development, yet its impact on total factor productivity (TFP) and the underlying mechanisms remain underexplored. This study addresses this gap by examining how ESG performance affects TFP, with a specific focus on the moderating effects of innovation capacity at both regional and corporate levels. This study analyzes panel data from Chinese A-share listed companies (2015–2022) using a fixed-effects regression model that accounts for year, industry, and corporate-specific factors. The findings remain robust even when employing alternative measures for key variables and incorporating one- and two-period lags for independent variables. The results demonstrate that while ESG performance significantly boosts TFP, the moderating effects of regional and corporate innovation capacities can paradoxically weaken this positive relationship. Specifically, higher levels of regional and corporate innovation capacities—typically regarded as drivers of competitive advantage—can lead to resource dispersion and priority misalignment, thereby diluting the beneficial effect of ESG initiatives on TFP. This innovative finding underscores the critical importance of strategic resource allocation and a balanced approach to innovation. Even in contexts with limited innovation resources, strong ESG practices substantially enhance TFP. This study underscores the pivotal role of ESG performance in enhancing TFP across diverse innovation environments at both regional and corporate levels. It offers novel theoretical insights and strategic recommendations, advocating for the seamless integration of ESG considerations into innovation strategies by both governments and enterprises. Additionally, investors should critically assess how well enterprises balance their innovation efforts with ESG initiatives to optimize TFP and foster sustainable, high-quality development.
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