ESG Performance, Institutional Investors and Corporate Risk-taking: Empirical Evidence from China

Abstract

Corporate ESG practices have attracted much attention as an important starting point to achieve China’s dual carbon goal, and how the ESG performance by Chinese listed firms affects their risk-taking is a question worth exploring. Basing our analysis on the data of China’s A-share listed companies from 2009 to 2021, we find that good ESG performance by listed companies significantly reduces their risk-taking, with institutional investors' shareholding as the mediating mechanism. Further research indicates that long-term institutional investors’ shareholding strengthens the risk inhibitory effect of good ESG performance, while short-term institutional investors’ shareholding weakens this effect. Good ESG performance only significantly reduces the risk-taking of firms at high risk levels and significantly inhibits excessive rather than insufficient risk-taking. When economic policy is unstable, ESG has a stronger inhibitory effect on risk-taking. This paper illustrates the importance of ESG engagement for long-term stable corporate development, which is of significant practical implications for regulatory policy making and listed companies’ strategic decisions in developing countries.