External guarantees and ESG performance in China: Resource constraints or impression management?

External guarantees provided by listed firms are prevalent in China, influencing firms' motivations and capabilities concerning other business strategies. ESG (Environmental, Social, and Governance) represents a strategic imperative for companies aiming at sustainable development. Understanding how external guarantees impact ESG performance is essential for advancing the ESG agenda. This study examines the relationship between the intensity of external guarantees and ESG performance among Chinese listed firms from 2009 to 2021. Our results consistently show a negative correlation between external guarantee intensity and ESG performance, impacting all ESG pillars and remaining robust through various robustness and endogeneity checks. The mechanisms underlying this impact include reduced resources, diminished stakeholder welfare, and hindered green innovation. The extent of this impact is influenced by environmental regulation, social trust, and market position while unaffected by the needs for impression management. These findings suggest that regulatory interventions in external guarantees could improve ESG outcomes, with significant implications for policymakers and corporate governance.