Boardroom bridges: spillover effects of ESG performance through inter-firm director interlocks - evidence from China

Growing concerns over climate change and environmental, social, and governance (ESG) issues have increased the emphasis on firms' ESG performance. In this study, we examine the inter-firm spillover effects of corporate ESG performance through director interlocks. Consistent with inter-organizational mimicry theory, we find a positive relationship between the ESG performance of connected firms and that of focal firms. Our results survive a range of robustness checks, including an instrumental variable approach, Oster's omitted variable bias method, and alternative model specifications. Moreover, we find that performance-based learning and green innovation serve as two important channels that explain the positive effect of the ESG performance of connected firms on that of focal firms. In addition, our findings highlight that the positive relationship between the ESG performance of connected firms and that of focal firms is stronger for firms with directors who have overseas experience, firms with greater environmental attention, firms operating in low-pollution industries or facing less stringent environmental regulations, and state-owned firms. Overall, our results show the importance of inter-firm networks in shaping ESG outcomes.