The impact of volume-based procurement wins on pharmaceutical companies’ ESG performance: a legitimacy approach

Purpose Although China implemented Volume-Based Procurement (VBP) policies in 2018, their implications for the sustainability of pharmaceutical companies remain underexplored. This study aims to address this gap by examining how winning VBP bids affects corporate Environmental, Social and Governance (ESG) performance. Design/methodology/approach Using multiperiod difference-in-differences data from China’s A-share firms spanning 2011–2022, this study assesses VBP’s impact on ESG performance, supported by a series of robustness checks such as parallel trend and placebo tests. Findings The essence of improved ESG performance following a successful VBP bid is a strategic behavior aimed at pursuing legitimacy. Internally, winning firms respond to policy pressure by proactively increasing R&D intensity, thereby optimizing their ESG performance to seek legitimacy. Externally, a successful VBP bid is interpreted by investors as a government endorsement, which alleviates financing constraints and enables firms to channel the resources into ESG initiatives to meet legitimacy demands. Originality/value This study pioneers a novel perspective by shifting VBP research from economic consequences to the ESG domain, offering a fresh lens for evaluating social value and corporate sustainability. Second, it integrates institutional and signaling theories within a legitimacy framework, revealing a dual mediating pathway of R&D intensity and financing constraints. The analysis elucidates how winning VBP bids enhances ESG performance by driving internal strategic adjustments and guiding external investment preferences.