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Can motivated funds mitigate ESG disagreement? Evidence from China

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  • Huang, Xiaobei
  • Song, Yunling
  • Wu, Hao
  • Lin, Lirong

Abstract

This study investigates how motivated funds—defined as institutional investors holding firms in their top 10 % portfolio positions by market capitalization—mitigate ESG rating disagreement in China’s capital markets. Analyzing 16,116 A-share firm-year observations (2017–2021), we find that their ownership significantly reduces environmental, social, and governance (ESG) rating discrepancies, particularly among firms with superior information transparency or heightened external scrutiny. These funds concurrently enhance ESG disclosure quality, increasing the likelihood of voluntary reporting by 23.7 % while reducing textual similarity across sustainability reports. Critically, although ESG divergence exacerbates stock price volatility and synchronicity, the presence of motivated funds attenuates these distortions. Our results identify concentrated institutional investors as governance intermediaries that alleviate ESG information asymmetry, even in markets dominated by controlling shareholders, thereby providing regulators with actionable insights for advancing sustainable finance in emerging economies.

Suggested Citation

  • Huang, Xiaobei & Song, Yunling & Wu, Hao & Lin, Lirong, 2026. "Can motivated funds mitigate ESG disagreement? Evidence from China," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s1544612325025954
    DOI: 10.1016/j.frl.2025.109346
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