ORIGINAL RESEARCH article
Front. Environ. Sci.
Sec. Environmental Economics and Management
Volume 13 - 2025 | doi: 10.3389/fenvs.2025.1652818
This article is part of the Research TopicEnvironmentally Just and Economically Sustainable Low-Carbon TransitionsView all 6 articles
Banking Liberalisation and Corporate ESG Performance: Evidence from the Removal of Foreign Ownership Restrictions in China
Provisionally accepted
- 1School of Economics and Management, Northwest University, Xi'an, China
- 2Xi'an Eurasia University, Xi'an, China
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Introduction: Banking liberalisation helps introduce international capital and environmental, social and governance (ESG) concepts and practices. Clarifying how this institutional policy promotes corporate ESG performance is crucial to sustainable development in emerging economies. Methods: Based on the exogenous policy shock of China’s removal of foreign ownership restrictions in the banking sector, the impact of banking liberalisation on corporate ESG performance is empirically tested using a generalised difference-in-differences (DID) model. Results: The findings reveal that corporate ESG performance significantly improved after foreign ownership restrictions were removed in the banking sector. This conclusion holds after endogeneity and robustness tests. Mechanism analysis indicates that banking liberalisation enhances corporate ESG performance by improving ESG information disclosure, alleviating financing constraints, and curbing managerial myopia. Heterogeneity analysis shows that this effect is particularly pronounced in heavily polluting industries and firms with high loan dependency. Further analysis demonstrates that public environmental concerns positively moderate the benefits of liberalisation. The ESG-enhancing effect of liberalisation is stronger when firms face greater environmental scrutiny. The ESG improvement resulting from banking sector liberalisation exhibits regional spillover effects, with neighbouring firms simultaneously improving their ESG performance. Conclusion: This study enriches research on the micro-level effects of financial liberalisation and provides important policy implications for emerging economies seeking to enhance corporate ESG performance.
Keywords: banking liberalisation, ESG performance, Generalized difference-in-differences, loan dependency, Public environmental concern
Received: 24 Jun 2025; Accepted: 08 Aug 2025.
Copyright: © 2025 Li, Liu, Guo and Gao. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
* Correspondence: Huixia Liu, School of Economics and Management, Northwest University, Xi'an, China
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