Capital Market Liberalization,outward Investment And Firm’s ESG Performance

Since the reform and opening up,China has always attached importance to the cooperation and exchange with the international market,and has continued to launch many policies of capital market liberalization and outward investment.On the one hand,it encourages foreign capital to enter the domestic market through preferential policies,and on the other,it actively encourages Chinese firms to expand internationally.Decades of progress have yielded remarkable results.As the global economy becomes more integrated,the development of countries and regions around the world becomes more closely linked,and they collaborate with one another to form an inseparable organic whole.China cannot achieve the second centennial goal without mutually beneficial cooperation with countries and regions all over the world.According to the report of the 20 th CPC National Congress,China has entered a critical period of high-quality development,which sets higher goals and requirements for two-way opening-up.Firms are not only the primary practitioners of two-way opening,but also a source of high-quality development.In recent years,the international economic environment has deteriorated and uncertainty has increased significantly as a result of climate risk,energy crisis,political conflict,and other factors.As a standard for evaluating sustainable and long-term development,the importance of environment,society and governance(ESG)in global economic development has become increasingly prominent,and it is also an important issue that cannot be ignored in the process of capital market liberalization and outward investment.However,the existing literature primarily examines its relationship with two-way opening from the macroeconomic and micro-firm levels,with little attention paid to the impact of two-way opening on firm’s ESG and its economic consequences.In comparison to mature economies,China’s integration into the global network has been more tortuous and complex.Local businesses must not only deal with the impact of institutional factors from different countries or regions,but they must also adapt to different cultural customs and social values.At the moment,the ESG concept,which is widely recognized and accepted globally,is one of the important means of enterprise communication and dialogue,and it is bound to affect the high-quality capital market liberalization and high-level outward investment of local firms.Based on this,this paper examines the relationship between two-way opening and firm’s ESG Performance and investigates the following issues: Will capital market liberalization and outward investment have an impact on firm’s ESG activities? If so,what are the potential mechanisms? What economic consequences of firm’s ESG practices during the process of two-way opening? To answer the above questions and provide empirical evidence for China’s further high-level opening up,this paper uses A-share listed companies on the Shanghai and Shenzhen Stock Exchanges as samples from 2011 to 2019,combines stakeholder theory,legitimacy theory,agent theory,and information asymmetry theory,and this paper investigates the impact,mechanisms,and economic consequences of two-way opening on firm’s ESG performance.This paper’s main findings and conclusions are as follows:First,this paper investigate the impact of capital market liberalization on firm’s ESG performance,using the two pilot policies of “Shanghai Hong Kong Stock Connect” and “Shenzhen Hong Kong Stock Connect” as the research scenario,this part employing the multi-period difference in difference model to investigate the differences in ESG performance between firms affected by policies and firms not affected by policies.First,using the background of China’s capital market opening and relevant theories,this paper analyzes the logic of the impact of capital market opening on enterprise ESG performance and provides preliminary evidence for future research through correlation analysis.Second,empirical analysis of data from public companies reveals that capital market opening can significantly improve the target firm’s ESG performance.This conclusion hold after series robust tests,including parallel trend test,entropy balance,alternative sample,placebo test,alternative measures of ESG performance.Third,the mechanism test was carried out directly using market transaction data and investor shareholding data obtained via the Shanghai,Shenzhen,and Hong Kong Stock Connect pilot channels.It was discovered that the increased attention of foreign investors and their participation in corporate governance were the primary reasons for the opening of the capital market to promote the improvement of firms’ ESG performance.Finally,the heterogeneity analysis demonstrates that the impact of capital market liberalization on firm ESG performance is differences due to the managerial team’s characteristics,the level of internal and external supervision,and the quality of firm’s financial information.Second,this paper investigates the impact of outward investment on firm ESG performance,specifically whether the enterprise has implemented the outward investment strategy by establishing overseas subsidiaries,and empirically tests the difference in ESG performance between firms with and without foreign investment.To begin,this paper analyzes the reasons for the impact of foreign investment on the ESG performance of firms,based on the background of China’s opening to the outside world and relevant theories,and uses a correlation test to preliminarily verify the relationship between foreign investment and the ESG performance of firms.Second,based on data from A-share listed companies in Shanghai and Shenzhen,the study discovered that foreign investment can significantly improve firm ESG performance,and the “breadth” and “depth” of foreign investment will significantly affect firm ESG performance.Second,in terms of robustness testing,various factors that may cause endogenous problems are primarily taken into account,and these are validated by using IV variables,the Heckman two-stage model,alyernative measure of firm ESG performance,entropy balance and propensity matching score,and constructing quasi natural experiment based on the “Belt and Road” initiative.Third,we empirically test the possible impact mechanism using the global governance index and global climate risk index,and find that the main reason for improving ESG performance is that firm meet the legitimacy and risk aversion requirements during the outward investment.Finally,the grouping test discovered that the impact of outward investment by firms on ESG performance was heterogeneous due to the nature of property rights,the degree of product market competition,and the importance of overseas markets.Third,this paper investigates the economic consequences of ESG in the capital market liberalization and outward investment.To begin,risk indicators are built from the two dimensions of market and enterprise to empirically analyze the relationship between firm ESG performance and risk,laying the groundwork for future research.According to the study,firm ESG performance can significantly reduce business risk and market risk.This conclusion holds up after a number of robustness tests.Second,the additional mechanism test demonstrates that the three dimensions of firm ESG performance are distinct and intertwined,promoting the transformation of firm sustainable management.Reduce the possibility of firms being sued and negative media reports,improve the quality of firm financial information,inhibit managerial opportunism,improve management efficiency,and reduce the potential risks faced by firms.Finally,the economic consequence analysis was carried out to examine the impact of firms’ improvement of ESG performance on the capital market and firms in the process of capital market liberalization and outward investment.The study discovered that,during the two-way opening process,firms’ active performance of ESG responsibilities can improve the capital market’s information efficiency in the future,reduce the unique risks of enterprises,alleviate the pressure of enterprise resource constraints,and increase firm value.This paper make several contributions: First,this paper reveals the positive impact of two-way open institutional changes in emerging markets on firm ESG performance,which differs from existing literature that focuses on firm ESG behavior in mature markets.Second,existing literature focuses primarily on the impact of macro-national and micro-firm factors on ESG performance.This paper contributes to the literature by demonstrating market interaction is an important factor in explaining ESG performance.Third,this paper provides new empirical evidence for the impact of two-way opening on firm from a non-financial perspective,which not only adds to the existing research on capital market liberalization and outward investment,but also examines the positive significance of adhering to the sustainable concept to improve ESG performance in the process of two-way opening on capital markets and firms.Fourth,the research presented in this paper provides empirical evidence for the formulation and implementation of China’s future high-level opening-up policy,as well as some illumination and significance for the high-quality development of capital markets and firms.