ESG Performance and Open Innovation: The Moderating Role of Common Institutional Ownership

Abstract

Inspired by the limited research regarding the interrelationships among Environmental, Social, and Governance (ESG) performance, common institutional investors and open innovation, this study adopts stakeholder theory and social network theory as the analytical framework to examine this issue. This study uses data from China’s A-share listed firms between 2018 and 2024, comprising 25,440 firm-year observations. Fixed-effects OLS models are employed to estimate the main relationships. Empirical findings demonstrate that ESG performance significantly promotes open innovation among Chinese companies. Furthermore, the moderating results indicate common institutional investors strengthen the positive association between ESG performance and open innovation. Further analysis confirms that each of the three dimensions of ESG can independently drive open innovation, yet the moderating effect of common institutional investors positively regulates only the relationships between social performance and open innovation as well as between corporate governance performance and open innovation, while exerting no significant impact on the relationship between environmental performance and open innovation. Overall, this study underscores the positive effects of ESG practices by focusing on the perspective of open innovation and integrating common institutional investors, which provides insights for enterprises to optimize their ESG practices and enhance their open innovation capabilities by virtue of external governance.