Does integration of ESG disclosure and green financing improve firm performance: Practical applications of stakeholders theory

Drawing on the lens of stakeholder theory, this paper explores the association between ESG disclosure, green finance, and the performance of Chinese firms, while considering the moderating role of competitive edge in terms of financing costs. By integrating ESG disclosure and green finance, firms can efficiently manage their financial resources and operate in an environmentally friendly manner. Besides, to gain stakeholder legitimacy, firms can exploit green finance to balance the triple bottom-line principle of People-Planet-Profit. For empirical investigation, the Two-stage Least-squares Cluster (2SLS-cluster) Regression method and the two-step dynamic System Generalised Method of Moments (Sys-GMM) method are used. The study uses data from a sample of Chinese firms over the period of 2014–2022. We find a positive and significant link between green finance and ESG disclosure. Our results further reveal that the competitive edge of firms in terms of financing costs moderates the relationship between green finance, ESG disclosures, and firm performance. These insights contribute to the extant literature on sustainable finance and have important implications for policymakers.