Integration of green finance with ESG compliance to enhance the firm value. Managerial approach to determining the level of liquidity

Abstract

The purpose of this study is to reveal the integration of green finance with environmental, social, and governance (ESG) compliance in firm liquidity. We also explore the non-financial channels like social capital and green innovation through which ESG compliance influences the firm’s liquidity. The study employs two-stage Least Squares (2SLS) and Generalized Method of Movements (GMM) regression analysis to address the endogeneity issues. The results obtained through 2SLS and GMM regression analysis indicate that firms engagement in green finance and ESG compliance help them keep their liquidity low. The findings indicate that firms operating in high-ESG regions have lower liquidity than firms operating in low-ESG regions. Green finance plays an essential role in designing the firm’s long-term strategy to promote sustainable development and address climate change. Green finance helps mobilize funds for sustainable environmental projects and reduces the risk of green investment. It may also improve the firm’s performance and reduce financial constraints. The government should introduce the clear legislation, incentives, and standards to promote the green finance for sustainable investment. The private sector can implement the green finance practices by integrating ESG disclosures with firm investment decisions, and innovation processes. This research study contributes to the existing corporate literature by analyzing the integration of ESG disclosures with green finance in the presence of social capital and green innovation in firm liquidity.