Ownership dynamics and ESG performance: The role of shareholder concentration and insider participation
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Journal Title
Journal ISSN
Volume Title
School of Business |
Master's thesis
Author
Date
2024
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
51 + 10
Series
Abstract
The integration of Environmental, Social and Governance (ESG) factors into corporate decisions has significantly increased due to evolving investor sentiment and stringent regulation, yet firms still retain discretion in their level of ESG commitments. In this study, we investigate the relationship between ownership structure and ESG performance using OLS fixed effect regressions on a European dataset of 8,439 firm-year observations from 2002 to 2022. Overall, we find that ownership concentration is negatively associated with ESG performance, especially when insiders possess significant blockholdings. Conversely, institutional ownership shows no significant relationship with ESG performance. A potential explanation for the result is that insiders, who typically hold less diversified investments, resist ESG improvements due to the trade-off between corporate spending on ESG and financial gains, whilst institutional owners may be more open to prioritize ESG, motivated by regulation. Our analysis also reveals non-linear relationships: while insider ownership is generally associated with lower ESG performance, the relationship improves at high levels of insider ownership. In contrast, institutional ownership is positively related to ESG scores at low to moderate levels but less so at higher levels. Further, we find that the relationship between ownership and ESG varies by ESG aspect and time period. The negative association of insiders seems to weaken when ESG measures align with financial goals: for example, the level of ESG controversies remains the same regardless of whether insider ownership is high or low. Additionally, over time, the association between insider ownership and ESG scores has become less negative, while institutional investors have shown a positive association in recent years. Our findings suggest that ownership structures and ESG practices are influenced by complex, idiosyncratic factors, highlighting the importance of considering both ownership concentration and identity in understanding ESG dynamics. This research provides valuable insights for investors, policymakers, and corporate managers in navigating ESG investments and performance.Description
Thesis advisor
Keloharju, MattiKeywords
ESG, CSR, ownership, insider, institutional, agency theory, ownership concentration, incentives
