Regulatory Minority Shareholder and Corporate ESG Performance:Evidence from a Quasi-natural Experiment
Small and medium-sized investors are an important driving force in the continuous development of China's capital market.However,the legitimate rights and interests of small and medium-sized investors are difficult to effectively protect because the shareholdings of Chinese listed companies are often concentrated among a few major shareholders and there is a lack of professionalism among small and medium-sized shareholders.In 2014,to further protect the legitimate rights and interests of small and medium-sized investors,the China Securities Regulatory Commission(CSRC)established the China Securities Investor Services Center(ISC)to increase the participation of small and medium-sized shareholders in corporate governance.On the one hand,the traditional governance mechanism of China's capital market can be divided into a public implementation mechanism based on the administrative supervision of the CSRC and a private implementation mechanism that relies on market forces.On the other hand,ISC is a special market entity that combines market and regulatory functions and has the dual characteristics of a"semi-public-quasi-private"implementation mechanism,which is known as the"regulatory mechanism."It is characterized by both"semi-public and semi-private"implementation mechanisms and is called"Regulatory Minority Shareholders."Unlike relatively independent investor protection organizations in foreign countries,ISC was approved and is directly managed by the CSRC,which has a strong deterrent effect in China's special capital market institutional environment.This institutional design is a new attempt by China to change the original comprehensive"strong regulation"mode and conduct market governance as a market participant,which is novel,innovative,and a useful exploration in the process of improving China's market economic system.ISC has become a hot research topic.Current research on ISC mainly explores whether its establishment has had practical regulatory effects in protecting the interests of small and medium-sized investors,but whether ISC,as a major institutional innovation,has had a significant impact on corporate ESG performance,which is of great concern to both investors and regulators,needs to be analyzed in depth through empirical studies.This study constructs a quasi-natural experiment based on the pilot program of ISC implemented by the CSRC in February 2016 and empirically examines the impact of the establishment of ISC on the ESG performance of listed companies in the pilot region using data from 2013 to 2017.As the pilot program only authorizes ISCs to purchase and hold shares of listed companies located in Shanghai,Hunan,and Guangdong(except Shenzhen),we take listed companies in these three provinces and cities as the experimental group.Based on comprehensive consideration of economic,cultural,and geographical factors,listed companies in Zhejiang Province,Hubei Province,and Shenzhen City,which are similar to the experimental group,were selected as the control group.The results reveal that the establishment of ISC significantly enhances the ESG performance of listed companies in the pilot region,and the conclusion still holds after a series of robustness tests.The mechanism tests indicate that ISC promotes corporate ESG performance by reducing information asymmetry,reducing management myopia,and enhancing risk management awareness.The heterogeneity analysis reveals that the enhancement effect of ISC on corporate ESG performance is more prominent among firms with a larger proportion of institutional investor shareholding,higher management competence,higher analysts'attention,and higher attention to the public environment of the region where they are located.Compared with existing studies,the contributions of this study include the following.First,it complements studies on the economic impact of ISC from the perspective of environmental,social,and corporate governance performance.In recent years,scholars have mainly explored the positive effects of the establishment of ISC on the protection of small and medium-sized investors'interests,as well as their impact on financial restatements and surplus management of listed companies,while lacking the necessary attention to the ESG performance of listed companies,which is a concern for current investors and regulators.Second,it expands academic knowledge on the factors influencing corporate environmental,social,and governance performance from the investor protection perspective.Existing studies have mainly explored the influencing factors of corporate ESG performance from the perspectives of air pollution pressure and common institutional investors'shareholding,while few studies have been conducted from the perspective of small and medium-sized investor protection.Third,it enriches the literature on listed companies'response to regulatory risk.This study finds that in the face of potential regulatory risks caused by the establishment of ISC,firms will improve their ESG performance,indicating that making ESG investments is also an effective strategic behavior for firms to cope with negative impacts,which opens up a new area of research on firms'response to regulatory risks.
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