Institutional Shareholders and Firm ESG Performance: Evidence from China

Abstract

It is a noteworthy phenomenon that institutional investors care more about the ESG performance of the firms in their portfolios in China. Exploring the role of institutional shareholders in firms’ ESG performance is vital for corporate sustainable growth. Using a sample of publicly listed firms from 2013 to 2020 in China, through the OLS model, order logistic model, and tobit model, we found that firms with higher institutional ownership had better ESG performance, especially in the environmental (E) aspect. The positive effect of institutional investors on ESG performance is more pronounced in SOE firms, and firms in low pollution industries. Furthermore, mechanism tests suggest that institutional shareholders can incentivize firms to engage in ESG by affecting management change and board voting.