Institutional Investors’ Corporate Site Visits and Firms’ Sustainable Development

Yize Hu,Peixun Zhan,Jun Shan

doi:10.3390/su12177036

Yize Hu, Peixun Zhan + Show 1 more

Open Access

https://doi.org/10.3390/su12177036

Copy DOI

Abstract

Institutional investors are essential stakeholders of the firm, and they care about firms’ sustainable development. In this study, we focused on a prevalent and essential type of information acquisition activity of institutional investors: corporate site visits, which refers to their trip to the firms’ headquarters and factories. We investigated the impact of institutional investors’ corporate site visits on firms’ likelihood of environmental violation. Using Chinese listed manufacturing firms in the Shenzhen Stock Exchange from 2009 to 2017, the econometric analysis shows that institutional investors’ corporate site visits significantly decrease firms’ likelihood of environmental violation. Moreover, this effect is more pronounced for firms in heavily polluting industries, firms not owned by the government, and firms with less institutional shareholding. Furthermore, we show that institutional investors’ corporate site visits prevent environmental violations by increasing firms’ environmental investment. Our study highlights the importance of institutional investors’ corporate site visits by showing that they are beneficial to the firms visited.

Highlights

The manufacturing industry is vital for a country’s economic development
Using manufacturing firms listed in the Shenzhen Stock Exchange during 2009–2017, we investigated the effect of institutional investors’ corporate site visits on firms’ likelihood of environmental violation
We find a negative association between the likelihood of environmental violation and corporate site visits after controlling for a wide array of firm characteristics, including firm size, tangibility, debt ratio, return on equity, institutional ownership, environmental investment, and province, industry, and year fixed effects

Summary

Introduction

Manufacturing firms may pursue profits at the cost of environmental pollution. Various stakeholders express their concerns about firms’ environmental violations. Institutional investors play critical roles as they own and vote the bulk of the world’s equity capital. The firms’ environmental violations could trigger negative capital market reactions, which hurt institutional investors’ interests. We focused on a prevalent and essential type of information acquisition activity of institutional investors: corporate site visits [1,2]. Investors’ corporate site visits could impact the hosting firms. We aimed to fill this void by investigating the impact of institutional investors’ corporate site visits and firms’ likelihood of environmental violations

Objectives

Results

Conclusion