ESG Performance and Corporate Fraudulence : Evidence from China

Using a large sample of Chinese public listed firms from 2014 to 2021, we examine whether firms’ ESG performance inhibits corporate fraud. We find that high ESG performance mitigates corporate fraudulence. After conducting a series of robustness tests, the results remain unchanged. This negative relationship is more pronounced in non-SOE (non-state-owned enterprise) firms and firms that voluntarily disclose ESG information. The mechanism analysis suggests that high-quality ESG engagement improves firms’ corporate governance performance and inhibits managerial myopia, which fosters good business ethics and mitigates corporate fraud. Overall, our findings provide addition evidence supporting the role of ESG in filling institutional voids in emerging economies. Our findings also provide significant policy implications for regulators and policy makers who seek to promote corporate information disclosure and mitigate corporate fraud risk