The Impact of ESG Investment on the Financial Performance of Chinese Listed Technology Companies: An Empirical Analysis

Abstract

This study acts as a completely practical guide that examines the relationship between Environmental, Social, and Governance (ESG) investments and the financial results of the Chinese publicly traded tech firms. Bearing in mind that the technological sector takes off innovation and economic growth, in particular, an understanding of how ESG engagement is affecting the profitability of companies is crucial for investors, policymakers, and corporate managers. Implementing the panel data of 200 technology firms from the two stock exchanges of Shanghai and Shenzhen during 2010-2022, the research uses fixed-effects regression models to investigate the impact of firm-level ESG scores on key financial indicators such as Return on Asset (ROA) and Return on Equity (ROE). Moreover, the study controls for such factors as firm size, leverage ratio, R&D intensity, and market-to-book ratio in order to evaluate the independent contribution of ESG performance. The empirical evidencing showed a statistically significant, positive correlation between higher ESG scores and financial performance. Interestingly, governance and environment aspects were more related to financial performance than social aspect. These discoveries enlarge the existing literature on ESG investing as they offer unique insights of the Chinese market, serving as the context. With the consideration of the stakeholders and resources-based perspectives, the theory in this study is discussed to find the mechanisms of the connection between ESG and financial performance. Suggestions regarding the incorporation of ESG elements in the tech industry are outlined for the sector's regulators, institutional investors, and corporate executives. The paper ends with the proposition of possible future directions of research, e.g., ones that are focused on causation and dealing with the influence of the 2020 regulations on ESG-related financial outcomes in China.