The Impact of ESG Performance on Financial Constraints

The global transition toward carbon neutrality has amplified the role of green finance, with ESG (Environmental, Social, and Governance) performance becoming a critical determinant of corporate financing decisions. In Chinathe largest emerging market and carbon emitterrecent policy innovations, such as green finance pilot zones and carbon emission reduction instruments, have accelerated ESG adoption. However, existing studies predominantly focus on linear ESG-financing relationships, overlooking nonlinear mechanisms, regional policy synergies, and technological disruptions like blockchain. This study examines the impact of ESG performance on financing constraints using panel data from Chinese A-share listed firms (20102020). Employing a progressive modeling framework (POLSOLSFEtwo-way FE), it systematically address endogeneity through financial controls, fixed effects, and robustness checks with alternative ESG metrics. Heterogeneity analyses reveal attenuated ESG effects in environmentally sensitive industries (=-0.161 vs. -0.294) and state-owned enterprises (=-0.106 vs. -0.323), attributable to regulatory compliance costs and soft budget constraints. The findings support the ESG signaling framework wherein enhanced disclosure reduces information asymmetry. Policy implications emphasize standardized ESG disclosure aligned with China-specific materiality and differentiated regulatory interventions across industries and ownership types.