Assessing the impact of corporate environmental performance on efficiency improvement in labor investment

Abstract Environmental, social, and governance (ESG) factors have become increasingly important to employees and companies alike. It is important to integrate ESG considerations into labor investment decisions. We examine the impact of ESG performance on firms ' labor investment efficiency. Using data from A‐share listed firms from 2015 to 2020, we find that ESG performance improves labor investment efficiency. Such positive effect is robust after using alternative measures for labor investment efficiency and ESG performance, alternative regression specifications, and a bunch of endogeneity tests. The mechanism tests show that a strong ESG record can reduce financial constraints and improve the information environment, thus subsequently boosting the efficiency of labor investment. The findings of the study shed light on efficiency improvement in labor investment for management, regulatory authority, and environmental activists.