The Causal Impact of ESG Ratings on Corporate Innovation: Evidence from Listed Companies

This paper contributes to the growing literature that explores the impact of corporate governance and corporate social responsibility on corporate innovation by examining the causal effect of ESG ratings on innovation activities of listed companies. Specifically, we find a positive causal effect of ESG ratings on innovation, providing a research perspective on ESG ratings to the existing literature (O'Connor and Rafferty, 2012; Cook et al., 2019). While existing studies on the impact of ESG ratings on innovation have focused on green innovation (Tan and Zhu, 2022; Wang et al., 2023), our study reveals that the incentive effect of ESG ratings is not limited to green innovation, but also promotes overall innovation, joint patent applications, and high-quality patents. Finally, our channel analysis shows that ESG ratings promote innovation by reducing financing constraints, agency costs, likelihood of CEO turnover, stock liquidity, and increasing R&D ratio and R&D personnel, providing more empirical evidence for relevant studies (Hall, 2002; Hall and Lerner, 2009; Bereskin and Hsu, 2011; Bereskin and Hsu, 2014; Fang et al., 2014; Howell, 2016; Yuan et al., 2023).