Sustainability and Technological Advancement: Evidence from an Exogenous Examination of ESG Based on Confucian Culture
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Abstract
Using Chinese public company data from 2009-2021, this paper reveals a positive correlation between corporate innovation and environmental, social, and corporate governance (ESG) performance. To establish causality, multiple causal identification methods are employed. This paper attempts to test the externality of ESG by taking Chinese Confucian culture as an instrumental variable. The mechanism research also reveals that good ESG performance encourages companies to increase their R&D personnel and spending, which in turn promotes innovation. ESG performance promotes innovation by attracting mutual funds, and reducing financing constraints, information asymmetry, and agency costs. Additional analyses show that ESG practices have promoted collaborative innovation and led to an increase in joint patent applications. ESG performance has a stronger positive effect on innovation output for companies with weaker ESG performance or lower innovation capabilities. This paper reveals that firms' sustainability-related activities stimulate technological progress and innovation.
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