ESG PERFORMANCE AND VALUE RELEVANCE OF ACCOUNTING INFORMATION: EVIDENCE FROM CHINESE CAPITAL MARKET

Abstract

This research studies the association between environmental, social, and governance (ESG) performance and the value relevance of accounting information. Fundamentally, the value relevance of accounting information is being widely discussed among policymakers, corporate practice, and academia. This study uses 6,486 firm-year panel data to analyze the data from 723 non-financial Chinese firms covering a period of 10 years (2011 – 2020). This study applies two-stage least square (2SLS) technical testing approach by using the one-year-lagged ESG performance and industry average ESG performance as the instrumental variables. Our results reveal that ESG performance decreases the value relevance of accounting information. Our findings have significant implications for capital market participants and nations’ policymakers with regards to the value relevance of accounting information in respect of the value creation by ESG information in tackling climate change risks.