SOE's ESG Performance on Financial Flexibility: The Evidence from the Hong Kong Stock Market

TL;DR

This study investigates how ESG performance influences financial flexibility among Hong Kong-listed companies from 2018 to 2022, highlighting the positive impact and the mediating role of financing constraints.

Contribution

It provides empirical evidence that ESG performance enhances financial flexibility and explores the moderating effects of ownership structure and market factors.

Findings

Good ESG performance significantly improves financial flexibility.

The impact of ESG on financial flexibility is weaker for state-owned enterprises.

Financing constraints mediate the relationship between ESG and financial flexibility.

Abstract

As the global economic environment becomes increasingly unstable, enhancing financial flexibility to cope with risks has become the consensus of many companies. At the same time, environmental, social, and governance (ESG) performance may be one of the effective ways. We studied the impact of a firm's ESG performance on its financial flexibility with a sample of companies listed on the Hong Kong stock market from 2018 to 2022. The empirical results show that good environmental, social and governance performance can significantly improve a firm's financial flexibility. In addition, this paper also finds that the influence of ESG performance on financial flexibility is weak for state-owned enterprises due to the influence of governance structure and market characteristics. Finally, the further analysis shows that there is a mediating role played by financing constraints in this process. This study can provide background information for state-owned enterprises' governance, information disclosure, and corporate operations. It also has guiding significance for relevant investors, management and officials.