Common Institutional Ownership and Climate-Related Information Disclosure: Evidence from China

Synopsis The research problem This study explores the nexus between common institutional ownership (CIO) and climate-related information disclosure (CID). Motivation or theoretical reasoning Global humanitarian emergencies — heat waves, floods, tropical storms, and wildfires — are being exacerbated by climate change and continuously augmenting in magnitude and frequency. Despite millions of people around the globe being increasingly exposed to these emerging threats, many corporations — responsible for a significant portion of industrial emissions, with an estimated handful of companies accounting for 71% of all emissions — either remain silent or provide very shallow disclosures of their environmental footprints. Academic efforts to enhance the extent of corporate CID have accentuated the responsibility of corporate governance actors. Studies suggest that high-quality corporate governance — characterized by independent, skilled, and diverse board leadership and significant external scrutiny from media, institutional owners, and analysts — improves CID practices. However, the distinct role of CIO, which refers to institutional investors’ shareholdings in two or more peer or competitor enterprises, is often overlooked. Given the inconclusive findings of CIO and limited attention in the literature to the quality of CID, our study investigates whether and how CIO affects CID. The test hypotheses Based on the discussion, we propose that common institutional ownership is positively associated with climate-related information disclosure. Target population We use a sample of companies listed on the Shanghai Stock Exchange (SHSE) and Shenzhen Stock Exchange (SZSE) from 2009 to 2019. Adopted methodology We use ordinary least squares, firm fixed effects, instrumental variable approach, Heckman two-stage model, and the propensity score matching method to corroborate our findings. Analyses Using Chinese A-share listed companies, we explore the nexus between common institutional ownership (CIO) and climate-related information disclosure (CID). We perform several robustness checks, cross-sectional tests, and examine the underlying channels for this relationship. Findings We find that CIO positively and significantly influences portfolio companies’ CID. The channel analysis indicates that CIO improves CID via monitoring and anticompetition effects, reducing proprietary cost concerns related to information disclosure. Our cross-sectional analysis implies that the CIO’s role in CID is driven by long-term CIO and is more salient in large-sized and highly financially constrained firms. Furthermore, CIO alleviates corporate greenwashing behaviors, thereby bolstering the authenticity and quality of CID. Finally, we document that the increased CID vis-à-vis CIO increases the firm value and alleviates financial distress. Our research contributes to the emerging literature concerning corporate ownership and CID and offers vital policy implications.