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How ESG performance shapes institutional investor preference? The mediating role of scale efficiency

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  • Song, Yaoyao
  • Luo, Shikun
  • Li, Aihua
  • Li, Guowen

Abstract

Growing institutional investor focus on corporate Environmental, Social, and Governance (ESG) performance is reshaping investment decisions. This study examines the impact of ESG performance on institutional investors' holdings within China's heavily polluting industries, utilizing data of 1142 listed companies. The analysis demonstrates that: (1) Higher ESG performance leads to increased institutional investor preference; (2) Company scale efficiency acts as a mediating channel through which ESG performance affects institutional holdings; (3) The influence of ESG performance varies: it exerts a positive impact on holdings by independent institutions, but not on non-independent institutions, and this positive effect is primarily evident among scale-inefficient companies rather than scale-efficient ones. These findings offer valuable insights for guiding institutional investor behavior and enhancing their market effectiveness.

Suggested Citation

  • Song, Yaoyao & Luo, Shikun & Li, Aihua & Li, Guowen, 2025. "How ESG performance shapes institutional investor preference? The mediating role of scale efficiency," Finance Research Letters, Elsevier, vol. 86(PB).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pb:s1544612325017003
    DOI: 10.1016/j.frl.2025.108446
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