The impact of institutional ownership structure on corporate ESG performance: empirical evidence for the European capital market

Abstract In response to contemporary challenges, this manuscript endeavours to scrutinize the impact of institutional ownership structure on the environmental, social, and governance (ESG) practices of companies. Specifically, the study investigates the influence of six distinct types of institutional investor on the ESG performance of companies. The analytical approach involves a balanced data panel comprising 563 publicly listed European organizations, resulting in 4504 observations. The theoretical foundation of the study lies in legitimacy theory, complemented by stakeholder theory to enhance the reliability and validity of the examined constructs. The empirical findings of this manuscript highlight a positive association between a long-term institutional ownership structure and a company’s ESG performance. Conversely, short-term oriented institutional investors exhibit a negative correlation with ESG performance. Notably, financial institutions, foreign institutional investors, governments, and pension funds demonstrate a positive correlation, while cross holdings and the category labelled as “other” exhibit a negative correlation with ESG performance. This contribution to the scholarly literature on institutional ownership and companies’ ESG performance provides both managerial insights and theoretical advances.