Environmental, Social, and Corporate Governance (ESG), Life Cycle, and Firm Performance: Evidence from China

Interest in firms' ESG performance is longstanding and growing. However, understanding remains fragmented across firms at different stages of their life cycle. This study investigates the role of life cycle stages in the relationship between ESG and firm performance in the Chinese context. Using a sample of 26,412 firm-year observations of firms listed in China from 2011 to 2021, the results provide evidence that, although ESG has a significant positive effect on firm performance, the effect is contingent on the stages of the firm's life cycle. The association between ESG and firm performance is more pronounced for firms in the growth and mature phases. We also find that this effect is enhanced for state-owned growth firms localized in regions with a lower marketization degree. Furthermore, the findings also extend the distinct mediation roles of institutional investors and the agency cost of free cash flow in the nexus of ESG and firm performance. This paper provides direct empirical evidence for a better understanding of firm's behavior across different life cycle stages, as well as helps to achieve a win-win situation of firm performance and social value.