Soft information monitoring along the supply chain: Customer geographic proximity and firms' ESG performance.

Previous research ignored the characteristics of environmental, social, and governance (ESG). ESG is soft information. Geographical proximity is important for external stakeholders to monitor firms' soft information. This study examines the impact of customer geographic proximity (CGP) on firms' ESG performance. We hand-collect data on the geographical distance of 29,111 pairs of Chinese A-share listed companies and their top-five customers from 2009 to 2022. First, we find that CGP promotes firms' ESG performance. The results still hold after considering the exogenous influence of the introduction of high-speed rail on CGP. Second, cross-sectional analysis shows that CGP exerts a more pronounced influence on firms with severe information asymmetry. Third, impact channel tests indicate that CGP promotes firms' ESG performance by increasing firms' cash flows. Fourth, the impact of CGP is more obvious when customers have stronger risk management motivation. Collectively, this study provides new insights into factors affecting firms' ESG performance.