Environmental, Social, and Governance Information Rating and Firm Uncertainty Perception, Evidence from China Listed Firms

Measuring firm value from an environmental, social, and governance perspective is a core concept of ESG (Environmental, Social, and Governance), which contributes to the sustainable growth of firms. This paper aims to investigate the relationship between firms' ESG performance and perceived economic uncertainty. Using a database of Chinese listed firms from 2011 to 2020, we find that firms with a good ESG performance are better able to resist changes in the external economic environment in the ESG rating system which still holds after a series of robustness tests and a discussion of endogeneity. The reason for this is that the ESG rating system better reduces information uncertainty between firms and the market, which allows firms to better focus on improving their technological and profit levels. In addition, companies with good ESG performance can provide more returns to investors. Our results highlight the necessity of aligning the interests between superior and subordinate governments and the importance of the supervision of superior governments in environmental decentralization. Our findings highlight the role of information communication in the market, especially in developing countries with imperfect information disclosure. It is all the more important to reduce information uncertainty between firms and other market players through mechanism building to achieve the long-term survival of quality firms.