ESG Performance and Innovation Quality

Abstract

Using a sample of Chinese A-share listed firms from 2009 to 2020, we examine the impact of a firm’s environmental, social and governance (ESG) performance on its innovation quality. Our findings suggest that better ESG performance contributes to higher innovation quality. This conclusion remains unchanged after a series of robustness tests. Additional analysis shows that when a firm has a good internal control or a high risk-tolerance, the impact of ESG performance on innovation quality is more pronounced. Finally, we find that better ESG performance also brings higher patent value to a firm. Our results provide policy guidance on promoting ESG and high-quality innovation of firms.

Keywords: ESG, innovation quality, patent complexity