The impact of environmental, social, and governance (ESG) practices on investment efficiency in China: Does digital transformation matter?

This paper examines whether environmental, social, and governance (ESG) practices affect firm investment efficiency and further discusses how digital transformation (DT) plays a significant role in this relationship in the context of China’s rapidly growing digital economy. The result suggests that ESG practices enhance firm investment efficiency by mitigating information asymmetries and agency conflicts. We also show that the positive relationship between ESG practices and firms’ investment efficiency is more pronounced for firms with high levels of DT.