The Effect of Digital Inclusive Finance on Corporate ESG Performance: Evidence from Chinese A-listed Shares

Abstract

Digital Inclusive Finance (DIF) is a controversial policy. It can facilitate business startups, provide security and transparency, enhance social inclusion and equality, and foster economic development. Still, it may also result in a debt trap for borrowers and elevated financial risks for creditors. Examining its effects thus seems critical for policymakers. Many previous studies have examined the impact of DIF on corporate environmental social governance (ESG) performance; however, their heterogeneity and mechanism tests are not comprehensive enough to provide thorough policy recommendations. After giving theoretical proof of the causality between DIF and ESG, the study empirically finds a positive correlation between the local DIF index and corporate ESG ratings by exploiting data from publicly listed companies from 2011 to 2020, and it passes several endogeneity and robustness tests. Heterogeneity tests suggest that the relationship is especially significant for larger-sized publicly owned primary sector firms in less economically developed regions regarding their social performance index. Mechanism tests suggest mediating variables of enhanced executive's green attention, reduced carbon emission, increased government subsidy, improved information disclosure, reduced capital misallocation, and financial constraints. These results contribute to policymakers' decision-making for a more efficient DIF development process to facilitate ESG improvements.