ESG performance and corporate resilience: unveiling the power of stakeholder relationships

Abstract Enhancing firm resilience to navigate crises is crucial for achieving sustainable development. This study investigates the relationship between ESG performance and firm resilience from the perspective of stakeholder relationships. The findings show that stronger ESG performance is positively associated with greater corporate resilience. Specifically, firms with stronger ESG performance experience smaller stock price declines and shorter downturns during crises, higher recovery probabilities and shorter recovery periods after crises, as well as stronger post-crisis adjustment and shorter adjustment periods. The mechanism tests suggest that ESG performance is associated with stronger resilience, partly through more stable stakeholder relationships. This is reflected in higher employee productivity, greater trade support and cost-sharing from suppliers and customers, and stronger action and financial support from investors, thereby expanding the resources available to firms during challenging periods. Additional analyses indicate that ESG and corporate governance display a substitution effect in shaping resilience, while external environmental regulation reinforces the effectiveness of ESG. Overall, the results suggest that ESG practices are positively associated with firms’ ability to withstand risks and support sustainable development.