This study aims to understand the potential relationship between water vulnerability and corporate financial performance for listed companies in China. Studies have argued that water risk has begun to affect the sustainability of firms, but few studies have included water conditions in the research framework to examine whether and how water conditions have a direct impact on firms. In addition, studies on environment governance have emphasized the impact of government environmental regulation on firms. This study focuses on both regulation and government investments that have been previously neglected. Using a sample of Chinese listed companies from 2016 to 2020, this paper uses pooled cross-sectional regressions with year and industry fixed effects to examine the effects of water vulnerability on corporate financial performance and analyze the mechanism of government water governance (which can be divided into water regulation and water investment) on the relationship between water vulnerability and corporate financial performance. This study finds that water vulnerability could negatively impact corporate financial performance, and water regulation can intensify but water investment couldn’t significantly relieve the negative impact. The relationships above differ between SOEs and non-SOEs and water-intensive and non-water-intensive industries.

Studies have argued that water risk affects corporate sustainability, but few of them have fully explored whether or not and how water resources have a direct impact on corporate finance and strategy. This study takes the listed companies in the Chinese A-share market from 2019 to 2023 as a sample to understand the threat of water vulnerability to corporate sustainability from the perspective of capital cost. This study argues that water vulnerability positively relates to corporate capital cost by increasing corporate financing constraints. Meanwhile, this study also examines the role of water regulation and water investment in the relationship between water vulnerability and corporate capital cost. Water regulation brings legitimate pressure to corporations and increases the transformation risks faced by them, so it has a positive moderating effect. Water investment can alleviate the vulnerability of local water resources and reduce the physical water risk faced by corporations, so it has a negative moderating effect. The study finds that the two measures mainly play a significant moderating effect on the cost of debt. In addition, the study finds that the positive relationship between water vulnerability and capital cost has industrial and firm-level heterogeneity, while the moderating effect of government water governance has only industrial heterogeneity.

With the increasing awareness of sustainable development and the construction of a water-saving society, many Chinese enterprises, especially those with high water-consuming corporations, have begun to pay attention to water-saving management. This study employs a scenario experiment method, focusing on high water-consuming corporations, to examine the differentiated responses of consumers to both symbolic and substantive corporate water-saving behaviors. The results show that substantive water-saving behaviors significantly enhance positive consumer attitudes and purchase intentions compared to symbolic behaviors. Consumer–company identification mediates the impact of water-saving behaviors on consumer responses. Corporate abilities and water resource conditions in consumer’s location moderate this relationship. These findings underscore the market value of corporate water-saving behaviors and provide guidance for companies in developing effective water-saving practices and marketing strategies.