THE DYNAMIC ROLE OF INTELLECTUAL CAPITAL IN MODERATING ESG PRACTICES AND FINANCIAL PERFORMANCE IN THE CHINESE A-SHARE MANUFACTURING SECTOR

This paper investigates the effects of environmental, social and governance (ESG) on financial performance and the moderating effect of intellectual capital (IC) on the relationship between ESG and financial performance. The study performs panel data analysis on data collected from 2,956 manufacturing companies listed on the A-share index of the Shenzhen and Shanghai stock exchanges from 2018 to 2021. Regression results indicate that ESG and management initiatives in implementing ESG have a significant and negative impact on financial performance, whereas the management initiative to control controversial events exerts a significant and positive impact. Investing in ESG and IC at the same time without proper resource allocation will exacerbate the increase in costs and thus reduce financial performance. Companies in the manufacturing sector should therefore consider the challenges and opportunities related to ESG and IC investments. Regulatory frameworks may encourage these companies to align their sustainability and IC strategies, which involve upfront costs. This paper contributes to the literature on the relationship between ESG and financial performance by considering IC as moderator in the context of Chinese manufacturing companies.