Deregulation as a catalyst: Market access reforms and corporate ESG in China

Abstract

Market access deregulation, as an external governance mechanism shaping corporate behavior, plays a crucial role in fostering corporate sustainability and social responsibility. Leveraging China's Negative List System for Market Access reform as a quasi-natural experiment, this study empirically examines how easing market access restrictions affects firms' environmental, social, and governance (ESG) performance. Using textual analysis and machine learning techniques on a sample of Chinese A-share listed companies from 2010 to 2022, we find that deregulation significantly enhances ESG performance by mitigating financing constraints, fostering competitive market dynamics, and increasing investments in environmental protection. The effect is more pronounced among mature firms, companies facing intense market competition, and those operating in regions with lower local protectionism. Furthermore, the policy-induced ESG improvements translate into higher firm value and lower corporate risk. Our findings highlight the broader economic implications of regulatory reform for sustainable corporate development.