ESG and Firm Value: Unlocking the Power of Internal Control

Abstract

As environmental, social, and governance (ESG) performance increasingly becomes a core component of corporate and investment strategies, its influence on sustainable development and firm value has garnered extensive academic and practical interest. This paper investigates how ESG performance affects firm value among Chinese listed companies, with a focus on the moderating role of internal control mechanisms. Based on a panel dataset comprising 16,810 firm-year observations from 1,681 listed companies between 2013 and 2022, the empirical analysis confirms a notable positive correlation between ESG performance and firm value. In particular, social and governance factors exhibit positive effects, while environmental performance demonstrates a significant negative correlation. Moreover, enterprises with well-established internal control systems can amplify the value-enhancing impact of ESG initiatives, underlining the critical role of governance structures in fostering sustainable corporate outcomes. These results offer practical implications for business leaders and regulatory bodies seeking to integrate ESG considerations into long-term value creation strategies within China’s dynamic market environment.