The Impact of ESG Performance of Fund on the Performance-Flow Relationship: An Empirical Evidence in China Fund Markets

With the mainstreaming of ESG investment globally, the scale of ESG public funds in China has exceeded 800 billion yuan, but the mechanism of its impact on investors’ capital flows remains unclear. Using a sample of Chinese equity and hybrid open-end funds from 2018 to 2024, this paper adopts a two-way fixed-effects panel model to explore the moderating role of fund ESG performance in the traditional performance-flow relationship. The findings are as follows. There is a significant “performance chasing” phenomenon in China’s fund market, showing a convex characteristic. The investors are far more sensitive to positive performance than negative performance. ESG performance has dual moderating effects. On the one hand, high ESG ratings attract additional capital inflows through a “halo effect” and reduce the sensitivity of capital to short-term volatility (risk buffer effect). On the other hand, high ESG ratings raise investors’ performance expectations, leading to more severe capital outflows when performance is poor (shackle effect). The impact of ESG sub-dimensions is heterogeneous. The environmental (E) factor is the core driver of capital inflows but amplifies capital penalties when performance declines; the governance (G) factor, though not directly attractive, stabilizes capital during poor performance (ballast effect); the social (S) factor has no significant impact. The conclusions provide a new perspective for understanding investor behavior in ESG investment and have important practical implications for fund managers and investors.