When Does ESG Performance Pay Off? Corporate Reputation and Firm Performance in Chinese State-Owned Enterprises

Environmental, social, and governance (ESG) performance has become a key tool in corporate sustainability strategies, yet its economic consequences remain debated, particularly in state-owned enterprises (SOEs) that pursue both economic and social objectives. This study systematically examines the impact of ESG performance on firm performance in Chinese listed SOEs, with a particular focus on the mediating role of corporate reputation. The results show a significant positive relationship between ESG performance and firm performance, with corporate reputation, risk-taking, and financial constraints as key transmission mechanisms linking ESG performance to firm performance. Further analysis reveals a threshold effect in the ESG–performance relationship: when corporate reputation is low, ESG investments may suppress firm performance, whereas once corporate reputation exceeds a certain threshold, ESG performance significantly enhances firm performance. These findings provide new empirical evidence on when ESG investments can translate into economic returns and highlight the conditional nature of ESG value creation.