The power of seeing: can institutional investor’s site visits promote ESG performance

Purpose We try to investigate the relationship between institutional investors’ site visits and corporate ESG performance under the current situation that the economic consequences of ESG performance are widely concerned. Design/methodology/approach Using the Sino-Securities ESG rating index as an indicator of corporate ESG performance, we find that institutional investors’ site visits facilitate corporate ESG performance. We select a sample of listed companies in the Shanghai and Shenzhen A-share markets for the study from 2014 to 2020. Findings This study finds that institutional investors’ site visits significantly improve corporate ESG performance. Channel tests suggest that institutional investors improve corporate ESG performance by exerting legitimacy and supervisory pressures. Additional analyses reveal that this relationship is influenced by ownership structure and firm size. Firms in heavily polluting industries show notable improvements in ESG performance following site visits, whereas firms certified with ISO 14001 are less affected. Furthermore, we find that institutional investors’ site visits bridge the corporate governance gap for transactional institutional investors and contribute to ESG performance. Originality/value This study expands research on the influence of institutional investors on corporate decision-making. Moreover, this study enriches the factors influencing ESG by exploring the impact of institutional investors on ESG behavior from the perspective of institutional investors’ site visits.