ESG Controversies and Firm Value: Evidence from A-Share Companies in China

Firm value reflects a company’s market competitiveness, while ESG controversies indicate its ESG risks. This study aims to examine the impact of ESG controversies on firm value and its underlying mechanisms. Using a panel dataset of 851 non-financial firms listed in China’s A-share market between 2010 and 2022, this study investigates the relationship between ESG controversies and firm value using a two-way fixed-effects model. The analysis shows that ESG controversies impair firm value. This relationship remains robust after conducting the Heckman test, 2SLS methods, and heteroskedasticity tests. Further mediation analysis indicates that ESG controversies negatively affect firm value through lower levels of green innovation, total factor productivity, and financing constraints. In addition, the study examines the moderating effects of social performance, environmental performance, and analyst forecast bias. Finally, a heterogeneity analysis was conducted. These findings provide new perspectives for understanding the complex dynamics between ESG controversies and firm value, essential for strengthening the ESG rating framework and promoting sustainable corporate development.