Institutional Ownership as a Driver of ESG Performance and Investment Efficiency: A Study of China

Abstract

This study examines the impact of ESG performance on investment efficiency while exploring the moderating role of institutional ownership in this relationship. Using data from Chinese firms spanning 2011 to 2023, retrieved from CSMAR, Bloomberg, and Wind Information, the analysis employs Fixed Effects (FE) and Two-Stage Least Squares (2SLS) models to address endogeneity and unobserved heterogeneity inherent in panel data. Investment efficiency is assessed using the Biddle model, and institutional ownership is measured as the ratio of shares held by institutional investors to total shares. The findings reveal a significant positive relationship between ESG performance and investment efficiency, with institutional ownership serving as a pivotal mediator. The Durbin-Wu-Hausman test confirms the need for 2SLS estimation to mitigate endogeneity bias. This research highlights the role of institutional investors in fostering sustainable corporate governance practices and optimizing investment strategies, offering valuable insights for corporate managers and policymakers.