Green Governance and Investment Efficiency in the US Firms: The Role of ESG Performance and Financial Constraints

This study investigates the relationship between environmental, social and governance (ESG) practices, investment efficiency and the moderating effect of financial constraints among S&P 1500 firms from 2010 to 2023. Using generalised method of moments (GMMs) estimators to address endogeneity and heterogeneity, we employ three investment inefficiency proxies and two financial constraint measures (the SA and WW indices). ESG scores are negatively associated with investment inefficiency, suggesting improved capital allocation and this relationship becomes stronger under higher levels of financial constraints. Governance practices are associated with the largest reduction in inefficiency, followed by social and environmental practices.