Competitive Pressure and ESG
Type
working paper
Date Issued
2024
Author(s)
Abstract
A firm’s exposure to competition is negatively associated with its ESG performance. We measure domestic competitive pressure by product market fluidity, based on product text descriptions, and find that higher fluidity – indicating higher product market threats – is associated with lower ESG scores. Fluidity matters more for financially constrained firms, capital-intensive industries, and costly activities, as well as firms with shorter-term shareholders. Increasing exposure to Chinese import competition is associated with a reduction in ESG scores. This effect of import competition is stronger for firms less exposed to domestic competition. Local climate attitudes moderate the effect of competitive pressure.