State ownership as a moderator of the ESG and financial performance relationship in Chinese listed steel companies

Abstract

This paper uses 134 A-share listed steel companies in China from 2014 to 2023 (804 firm-year observations) as research subjects. The primary research question asks whether state ownership moderates the association between ESG performance and accounting-based financial performance, and it is addressed through a two-way fixed-effects model incorporating an interaction between ESG performance and state ownership, with the analysis of individual ESG dimensions treated as a subsidiary examination that refines the ownership question rather than displacing it. ESG performance is significantly and positively associated with both return on assets (ROA) and return on equity (ROE), and state ownership is associated with a systematically weaker positive relationship, such that the ESG association within state-controlled steel companies falls to a magnitude that is no longer statistically distinguishable from zero while remaining robust among non-state-owned enterprises. A subsidiary analysis of the three ESG dimensions indicates that the attenuation associated with state ownership is concentrated on the environmental and social dimensions and is statistically indistinguishable from zero on the governance dimension, a pattern that qualifies the ownership finding by locating it in the dimensions carrying the greatest regulatory-compliance content. The interaction retains its negative sign across every specification in which it is estimable, covering alternative ESG ratings, instrumental-variable estimation, exclusion of ownership-transition firms and a continuous measure of state shareholding in the main analysis, together with alternative fixed-effects structures, propensity score matching, exclusion of the pandemic years and an untransformed rating scale reported in the Supplementary Material. The evidence pertains to A-share listed steel companies in China between 2014 and 2023 and is associational rather than causal, and on that basis the study delineates the ownership conditions under which accounting returns to ESG improvement are realised in a heavily polluting industry, a delineation of potential relevance to Sustainable Development Goals 8, 9, 12 and 13 although the design does not measure progress toward any SDG target directly.