How Digital Finance Shapes ESG Outcomes: The Mediating Roles of Productivity and Analyst Coverage

This paper investigates how digital finance affects corporate ESG performance through the following mediation paths. Based on agency theory and a resource-based view, we hypothesize that digital finance benefits ESG performance not only directly but also indirectly through enhancing TFP and analyst coverage. We test our hypotheses using 22,576 firm-year observations of Chinese listed firms from 2011 to 2023 by employing a fixed-effects mediation model. The empirical results support our hypotheses. Digital finance improves ESG performance directly, and part of its effect goes through higher TFP and better analyst monitoring. The results show that digital finance plays dual roles in improving efficiency and market monitoring, which is beneficial to corporate sustainability. By identifying the above two mediation paths, this paper enriches the theoretical understanding of the relationship between financial digitalization and sustainability and provides practical implications for policymakers and managers to improve ESG performance.