Can corporate ESG investing boost zombie firms back to normal? Evidence from Chinese firms

Purpose This study aims to examine the ramifications of corporate environmental, social and governance (ESG) investing in zombie firms and considers how external funding support may moderate this relationship given the sustainable nature of ESG performance, which often incurs costs. Design/methodology/approach Panel regression analyses used data from China’s A-share listed companies from 2011 to 2019, resulting in a data set comprising 6,054 observations. Findings Despite firms’ additional financial burdens, corporate ESG investing emerges as a catalyst in resurrecting zombie firms by attracting investor attention. Further analysis underscores the significance of funding support from entities such as the government and banks in alleviating ESG cost pressures and enhancing the efficacy of corporate ESG investing. Notably, the positive impact of corporate ESG investing is most pronounced in non-heavily polluting and non-state-owned firms. The results of classification tests reveal that social (S) and governance (G) investing yield greater efficacy in revitalizing zombie firms compared to environmental (E) investing. Practical implications This research enriches the discourse on corporate ESG investing and offers insights for governing zombie firms and shaping government policies. Originality/value By extending the domain of ESG research to encompass zombie firms, this paper sheds light on the multifaceted role of corporate ESG investing. Furthermore, this study comprehensively evaluates the influence of external funding support on the positive outcomes of ESG investing, thereby contributing to the resolution of the longstanding debate on the relationship between ESG performance and corporate financial performance, particularly with regard to ESG costs and benefits.