The Impact of Corporate ESG Engagement on Inefficient Investment: Does Regional Marketization Matter?

Efficient corporate investment is crucial for optimizing resource allocation, enhancing corporate value, and promoting sustainable, high-quality national economic development. Using a large dataset of Chinese A-share listed companies, this study explores whether corporate ESG engagement can mitigate inefficient investment. Our empirical results demonstrate that stronger ESG engagement effectively curbs overall inefficient investment. Furthermore, we find that the regional marketization level where firms operate significantly moderates this ESG engagement-inefficient investment nexus, attenuating the beneficial impact of ESG in more developed market environments. Further heterogeneity analyses reveal that the positive impact of ESG engagement on enhancing investment efficiency is more pronounced for firms prone to over-investment and for profitable firms. Moreover, the magnitude of its efficacy varies depending on firm ownership, firm financial status, auditor type, and the industry competition level. This research enriches the ESG literature by providing novel evidence from emerging economies and highlighting the critical role of institutional context. It also provides practical insights for firms, investors, and policymakers seeking to make more accurate investment decisions, thereby fostering corporate and economic sustainability.