Depoliticization and environmental, social, and government: Evidence from China's Rule 18

This paper uses China's Rule 18 to examine the relationship between political connection and corporate environmental, social, and government (ESG) performance. Drawing on the difference-in-differences (DID) method, this paper finds that depoliticization leads to an improvement in corporate ESG performance. Moreover, this paper examines the underlying mechanisms focusing on the prerequisite and motivations. Specifically, depoliticization reduces firms' rent-seeking expenditures, allowing resources to be allocated toward improving ESG performance and disclosing ESG information; to compensate for the negative influence of depoliticization, firms are motivated to improve ESG performance because ESG practice can enhance firms' competitiveness and financial performance. Further analyses show that the positive impact of depoliticization on ESG performance is more pronounced in eastern China and areas with lower levels of environmental regulation. This paper offers insights for other developing countries seeking to improve ESG performance through political avenues and contributes to the literature on corporate green development.