The Impact of ESG Performance on Corporate Financing Costs: The Moderating Role of Board Governance

Abstract

Against the backdrop of deepening global ESG (Environmental, Social, and Governance) principles coexisting with the "expensive financing" dilemma in China's A-share market, this study examines non-financial listed companies from 2018 to 2024 using 20484 annual observations of unbalanced panel data. It empirically investigates the impact of ESG performance on corporate debt financing costs (DFC) and equity financing costs (EFC), while testing the moderating role of board governance. The findings reveal two key conclusions: First, ESG performance shows a significant negative correlation with financing costs for A-share companies. After controlling for other variables, each 10-point increase in ESG score reduces DFC by an average of 0.32 percentage points and EFC by 0.45 percentage points. Specifically, this negative relationship is primarily driven by governance (G), with a 10-point improvement in G scores reducing DFC and EFC by 0.43 and 0.57 percentage points respectively, followed by environmental (E) and social (S) dimensions. Second, board governance exerts a significant positive moderating effect on the "ESG performance-funding cost" relationship. Factors such as higher independent director ratios (125% increase at mean +1 standard deviation), separation of chairman and CEO roles (96.7% higher than in dual-role enterprises), board size within the reasonable range of 5-11 members, and meeting frequency maintained at 8-12 times/year amplify ESG's cost-reduction effects. Conversely, excessively small/large board sizes or overly frequent meetings weaken this moderating effect. The conclusions of this paper provide empirical references for enterprises to optimize ESG practices (giving priority to G and E dimensions) and board governance structure, as well as regulators to improve ESG information disclosure system.