How does corporate ESG performance affect stock liquidity? Evidence from China

This study examines whether and how corporate environmental, social, and governance (ESG) performance is associated with firm's stock liquidity. We find robust evidence that ESG performance statistically and significantly increases firm's stock liquidity. The results of channel tests indicate that ESG performance increases firm's stock liquidity by lowering corporate risk and gaining stakeholders' support. Additionally, we find that the positive effect of corporate ESG performance is driven by all the three dimensions. Collectively, our study highlights the importance of corporate ESG performance and its economic consequences. •ESG performance has a positive effect on stock liquidity.•ESG performance improves stock liquidity through reducing firm risk.•ESG performance improves stock liquidity through gaining stakeholder support.