The Impact of ESG Efficiency on the Cost of Equity Capital: Evidence from China
Keywords:
ESG, cost of equity, Hong Kong, Mainland China, ownership structure
Abstract
This paper presents an empirical analysis of the correlation between ESG performance and cost of equity capital of listed companies in mainland China and Hong Kong from 2018 to 2022. The final empirical results of the study show that there is a negative correlation between ESG performance and cost of equity capital in China. The study also finds that, among the three dimensions of ESG, the social dimension has the most significant impact on Chinese listed companies. The geographical location and property rights of companies also have an impact on the relationship between the two variables. Compared to companies in Hong Kong, the improvement in environmental, social, and corporate governance performance of mainland Chinese companies has a more pronounced effect on reducing the cost of equity capital. Similarly, compared to state owned enterprises, the improvement in environmental, social, and corporate governance performance of non-state-owned enterprises has a more significant impact on reducing the cost of equity capital. These findings highlight the importance of incorporating ESG factors into business practices for the long-term success and sustainable growth of China’s capital markets.
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References
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3. Hillman, A. J., & Keim, G. D. Shareholder value, stakeholder management, and social is-sues: what's the bottom line?. Strategic management journal. 2001; 22(2): 125-139.
4. Brammer, S., Brooks, C., & Pavelin, S. Corporate social performance and stock returns: UK evidence from disaggregate measures. Financial management. 2006; 35(3): 97-116.
5. Bui, B., Moses, O., & Houqe, M. N. Carbon disclosure, emission intensity and cost of equi-ty capital: multi‐country evidence. Accounting & Finance.2020; 60(1): 47-71.
6. Elmawazini, K., Chkir, I., Mrad, F., & Rjiba, H. Does green technology innovation matter to the cost of equity capital?. Research in International Business and Finance. 2022; 62: 101735.
7. Hmiden, O. B., Rjiba, H., & Saadi, S. Competition through environmental CSR engagement and cost of equity capital. Finance Research Letters. 2022; 47: 102773.
8. Wang, M. L., Feng, Z. Y., & Huang, H. W. Corporate social responsibility and cost of equi-ty capital: A global perspective. Journal of Behavioral Finance. 2013; 9: 85-94.
9. Matthiesen, M. L., & Salzmann, A. J. Corporate social responsibility and firms’ cost of eq-uity: how does culture matter?. Cross Cultural & Strategic Management. 2017; 24(1): 105-124.
10. Chen, K. C., Chen, Z., & Wei, K. J. Legal protection of investors, corporate governance, and the cost of equity capital. Journal of corporate finance. 2009; 15(3): 273-289.
11. Gupta, K., Krishnamurti, C., & Tourani-Rad, A. Financial development, corporate govern-ance and cost of equity capital. Journal of Contemporary Accounting & Economics. 2018; 14(1): 65-82.
12. Jang, S., Choi, H., & Kim, H. Managerial ability and cost of equity capital. Advances in Ac-counting. 2023; 100681.
13. Mio, C., Fasan, M., & Scarpa, F. Materiality investor perspectives on utilities’ ESG per-formance. An empirical analysis of ESG factors and cost of equity. Utilities Policy. 2023; 82: 101555.
14. Ng, A. C., & Rezaee, Z. Business sustainability performance and cost of equity capital. Journal of Corporate Finance. 2015; 34: 128-149.
15. Zhu, T. The Impact of Environmental Performance on the Cost of Equity Capital: Evidence from Chinese Listed Companies in Heavy Pollution Industries. Science, Technology, and Social Sciences Procedia. 2023(4): CiM01-CiM01.
16. Wang, K. T., Liu, Y., & Wang, W. W. Government control, regulatory enforcement actions, and the cost of equity. European Accounting Review. 2022; 31(2): 449-493.
17. Li, J., Lian, G., & Xu, A. How do ESG affect the spillover of green innovation among peer firms? Mechanism discussion and performance study. Journal of business research. 2023; 158: 113648.
18. Xu, S., Liu, D., & Huang, J. Corporate social responsibility, the cost of equity capital and ownership structure: An analysis of Chinese listed firms. Australian Journal of Manage-ment. 2015; 40(2): 245-276.
19. Yeh, C. C., Lin, F., Wang, T. S., & Wu, C. M. Does corporate social responsibility affect cost of capital in China?. Asia Pacific Management Review. 2020; 25(1): 1-12.
20. Tang, H. ESG performance, investors’ heterogeneous beliefs, and cost of equity capital in China. Frontiers in Environmental Science. 2022; 10: 992559.
21. Arrigo, A. A. The impact of sustainability on the cost of equity capital of business firms. MSc dissertation. 2020
22. Ramirez, A. G., Monsalve, J., González-Ruiz, J. D., Almonacid, P., & Peña, A. Relationship between the Cost of Capital and Environmental, Social, and Governance Scores: Evidence from Latin America. Sustainability. 2022; 14(9): 5012.
23. Ashbaugh, H., Collins, D. W., & LaFond, R. Corporate governance and the cost of equity capital. Emory, University of Iowa. Retrieved on January. 2004; 26(2006): 329-340.
24. Kong, W. The impact of ESG performance on debt financing costs: Evidence from Chinese family business. Finance Research Letters. 2023: 103949.
25. Gao, H., & Hu, C. Y. The impact of green mergers and acquisitions on the performance of listed companies in high-energy-consuming industries in China. Journal of East China Normal University (Philosophy and Social Sciences). 2019; 51(6): 162-172. [In Chinese]
26. Chen, Y., Li, T., Zeng, Q., & Zhu, B. Effect of ESG performance on the cost of equity capi-tal: Evidence from China. International Review of Economics & Finance. 2023; 83: 348-364.
27. Echterling, F., Eierle, B., & Ketterer, S. (2015). A review of the literature on methods of computing the implied cost of capital. International Review of Financial Analysis, 42: 235-252.
28. Easton, P. D. PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital. The accounting review. 2004; 79(1): 73-95.
29. Fedorova E.A., Fedotova M.A., Slepneva T.A., Demin I.S. The Impact of ESG Social As-pects Disclosure on the Stock Prices of Chinese Companies. Finance: Theory and Practice. 2025; 29(6) :18-31. https://doi.org/10.26794/2587-5671-2025-29-6-18-31
Published
2026-04-28
How to Cite
ChurakovaI. and NazarovaV. (2026) “The Impact of ESG Efficiency on the Cost of Equity Capital: Evidence from China”, Journal of Corporate Finance Research / Корпоративные Финансы | ISSN: 2073-0438, 20(1), pp. 86-99. doi: 10.17323/j.jcfr.2073-0438.20.1.2026.86-99.
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Section
New Research
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