ESG Performance and Firm Value in China’s A-Share Market: Green Innovation and Digital Transformation Mechanisms

Abstract

This study examines whether environmental, social, and governance (ESG) performance enhances firm value in China’s A-share market, how this relationship operates, and under what conditions it becomes stronger. Drawing on stakeholder theory, the natural resource-based view, and the dynamic capabilities perspective, this study develops a moderated mediation framework in which green innovation mediates the ESG–firm value relationship and digital transformation strengthen the ESG–green innovation link. Using panel data for 4423 Chinese A-share listed firms comprising 27,254 firm-year observations from 2009 to 2023, the hypotheses are tested using two-way fixed-effects models, mediation and moderated mediation analyses, robustness tests, and instrumental-variable estimation. The results show that overall ESG performance is positively associated with firm value, although its dimensions exhibit heterogeneous effects: environmental performance is negatively associated with firm value, whereas social and governance performance show positive associations. Green innovation partially mediates the ESG–firm value relationship, indicating that ESG creates greater economic value when sustainability commitments are translated into substantive green innovation. Digital transformation further strengthens the indirect effect of ESG performance on firm value through green innovation. Heterogeneity analyses reveal that the value relevance of ESG varies across firm size, ownership type, and industry pollution intensity. The findings suggest that ESG does not create firm value automatically; rather, its economic value depends on firms’ ability to transform sustainability commitments into innovation, with digital transformation enhancing this process. By identifying both the mechanism and the boundary condition of ESG value creation, this study provides new evidence on how and under what conditions ESG contributes to firm value in an emerging market.