The impact of ESG performance on the perception of economic policy uncertainty: Evidence from China

Abstract

In the context of escalating economic policy uncertainty and a growing focus on firm ESG practices in China, this study investigates the impact of firms’ ESG performance on their perception of economic policy uncertainty (EPU). The empirical analysis draws on the data from the listed companies in China over the period 2009–2022. The results reveal that enhancing ESG performance can significantly mitigating firms’ EPU perception through strengthening internal control, stabilizing external financing, and improving supply chain resilience. Moreover, this study suggests that the effect of ESG performance is particularly pronounced among firms situated in less marketized regions and those with weak market power. Further analysis finds an increasing marginal impact of ESG performance on firms’ perceived EPU, and suggests a positive correlation between reduced EPU perception and increased investment expenditure within firms, particularly focusing on the implementation of long-term growth strategies.