Does an optimal ESG score exist? Evidence from China

Utilizing the environment, social and governance (ESG) score database, this paper examines the impact of ESG rating on a firm's financial performance for 438 listed firms in China over the period 2010 to 2020. Our investigation revealed some fresh insight into the presence of a non-monotonic relationship of a firm's ESG score and its financial performance, which strengthens the idea of an optimal level of ESG score. Furthermore, the study has highlighted the governance-based considerations of international institutional investors regarding the Chinese stock market. Hence, the insights gained from this study may be of assistance to the firm's management and investors in an emerging market.