Mixed-ownership reform of SOEs and ESG performance: Evidence from China

Abstract

Practicing the paradigm for sustainable environment, society, and governance (ESG) in the mixed-ownership reform (MOR) of state-owned enterprises (SOEs) is a new opportunity for emerging economies to participate in global governance. Therefore, the impact of the MOR on the ESG performance system of SOEs was studied from different measurement perspectives using the panel data (2009-2020) of 643 listed SOEs in China. The results show that the MOR significantly improves the comprehensive ESG performance and that in different branches of SOEs, especially SOEs with large capital scale, large numbers of employees, low degree of financialization, and high environmental sensitivity. In addition, mechanism analysis results show that MOR could stimulate ESG performance through the dual-resource path of capital and labor. However, the management greatly increases its incomes from the improved payroll cost, widening the salary gap within SOEs and leaving the social stratification trap. Further analysis found that the “tunneling” behavior by state-owned major shareholders during the MOR have a U-shaped or J-shaped influence on ESG performance in multiple fields. At the same time, the incentives for ESG performance by non-state shareholders were weakened by financialization, while their appointed directors, supervisors, and senior executives (ADSE) did not stop the behavior of transforming the economy from substantial to fictitious. This paper not only provides empirical evidence on sustainable practices of SOE reforms in countries with emerging economies but also digs deeper into the root causes of risks and resistance. These studies with moral and ethical overtones are overlooked by scholars and stakeholders concerned with MOR.