The Positive Impact of ESG Ratings on Corporate Innovation: An SSCI Financial Perspective

There are several reasons why ESG ratings may have a positive impact on a company's innovation activities. Firstly, a high ESG rating signifies good corporate governance, which can promote innovation activities in the company (O'Connor and Rafferty, 2012). Secondly, innovation activities in a company may result in short-term profit reductions, and shareholders may not have timely access to information on the company's innovation performance. As a result, poor performance may be attributed to inadequate managerial effort (Jiang & Yuan, 2018), and managers may be forced to leave. The ESG rating process can help shareholders fully understand the company's performance in sustainable development, enhance trust in managerial innovation decisions, reduce the likelihood of forced resignations, and indirectly motivate managers to engage in innovation activities (Bereskin and Hsu, 2011; Bereskin and Hsu, 2014; Yuan et al., 2023). Finally, good ESG performance can reduce financing constraints for listed companies (Bai et al., 2022), which can promote innovation activities in the company (Hall, 2002; Hall and Lerner, 2009; Howell, 2016).