Abstract
With the increasing attention to sustainable development, environmental, social, and corporate governance (ESG) investment has become an important vehicle for achieving carbon neutrality worldwide. In this paper, the impact of ESG performance on stock returns and the transmission mechanism are explored. A fixed effect model based on a panel unbalanced data of listed companies in China from 2011 to 2020 is selected for the empirical analysis. The results show that ESG performance of listed companies in China positively impacts stock returns. However, by distinguishing the ownership nature and region to which listed companies belong, this study finds that the relationship between ESG performance and stock returns is particularly significant for non-state-owned companies and those in the eastern region. Further, based on stakeholder theory, financial performance and corporate innovation ability are embedded into the relationship between ESG performance and stock returns. Both financial performance and corporate innovation ability play partial mediating roles in the correlation between ESG performance and stock returns. In addition, the relationship between ESG performance and corporate innovation ability is non-linear. This paper provides insight for emerging markets into cultivating the value investment concept of investors and improving the ESG information disclosure system.