Institutional Investors, CSR Report Readability and the Moderating Role of ESG Performance

Abstract

This study examines the impact of institutional investors on the readability of corporate social responsibility (CSR) reports in the Chinese polluting industry. All available CSR reports in the listed polluting industries in China from 2010 to 2019 are analyzed to develop a readability score for each company. To differentiate the heterogenous motivation of institutional investors, we classify institutional investors into long-term and short-term investors based on their holding purpose and trading frequency. The results show that long-term institutional investors with long-term horizons have strong motivation to engage in the CSR reports disclosure. However, short-term institutional investors pursue near-term interests and they may have weak incentives to participate in the corporate governance and improve CSR report readability. Furthermore, we also find that the positive relationship between long-term institutional investors and CSR readability is stronger in polluting firms with higher environmental, social, and governance (ESG) performance. The significant role of institutional investors in promoting CSR reporting highlights the importance for polluting firms to acknowledge the needs of large and influential investors.

Peeking into Corporate Greenwashing through the Readability of ESG Disclosures

“…Consequently, an increasing number of companies are beginning to disclose ESG information [31]. Stakeholder theory and corporate ESG disclosure readability are closely intertwined, as both prioritize stakeholders and their interests [32]. Companies that prioritize stakeholders are more likely to focus on transparency, engagement, and accountability, thus creating accessible and meaningful ESG reports for stakeholders [32].…”

“…Stakeholder theory and corporate ESG disclosure readability are closely intertwined, as both prioritize stakeholders and their interests [32]. Companies that prioritize stakeholders are more likely to focus on transparency, engagement, and accountability, thus creating accessible and meaningful ESG reports for stakeholders [32]. Therefore, ESG disclosure readability has a significant impact on a company's communication of its ESG performance and influences the strategies of investors and other stakeholders towards the company [17].…”