Better city, better life: smart city policy and corporate ESG performance

Using data from Chinese listed companies, this study examines the overall impact of the smart city policy (SCP) on corporate environmental, social, and governance (ESG) performance, focusing on the distinct effects across the E, S, and G dimensions. Using a multiperiod difference-in-differences (DID) approach, we analyse 24647 firm-year observations from 2009 to 2021, leveraging the three-stage SCP rollout as a quasi-natural experiment. The results indicate that the SCP improves corporate ESG scores by approximately 0.04, with significant enhancements in governance performance. Mechanism analysis also reveals that the SCP fosters ESG improvements through increased R&D investments and market attention, while executive environmental awareness has limited effects. Policy impacts also vary by ownership and industry, with state-owned enterprises, industrial firms, and companies in low-pollution and high-technology sectors obtaining the greatest benefits. Robustness checks, including alternative models and PSM-DID estimations, confirm these findings. Moreover, interaction analysis indicates that the SCP and other sustainability-focused policies (e.g. green credit and resource city policies) act as substitutes rather than complements due to policy priority and resource constraints for companies. Our findings underscore the importance of a coordinated policy design to maximize the collective effectiveness of policies in promoting sustainable corporate practices.