New Firm entry and ESG performance: An inverted-U curve from spillovers to involution

Against the backdrop of China's growing emphasis on corporate ESG performance and the prevalence of involutional competition within industries, this study examines the impact of new firm entry on the ESG performance of incumbent firms, using panel data from Chinese A-share listed companies spanning 2008 to 2022. The results reveal a significant inverted U-shaped relationship: moderate levels of new entry enhance ESG performance, whereas excessive entry suppresses it due to intensified resource constraints. Mechanism analysis identifies innovation capacity, profitability, and disclosure quality as key transmission channels. Further moderation analysis shows that supply chain resilience and ownership concentration amplify the effects of competitive pressure, while firm age mitigates them. Moreover, new firm entry primarily affects the social dimension of ESG, especially employee compensation. This study enriches the literature on ESG behavior from a competition-based perspective, uncovers the nonlinear dynamics between market competition and sustainable strategy, and offers both theoretical and empirical insights for corporate governance and policy formulation in emerging markets.