1. Introduction
As interest in corporations’ level of sustainability continues to grow, the ESG score metric, which includes the three aspects of environmental, social responsibility, and corporate governance, has emerged as an important tool for evaluating corporations’ non-financial performance [
1,
2]. The ESG score was originally intended to be of concern to stakeholder interests and the long-term value of firms, rather than short-term economic advantages. However, ESG scores have now become a key indicator of concern for an increasing number of investors, since investments in ESG can provide numerous benefits to companies [
3]. Enhancing the ESG performance has been empirically proven to not only boost the firm value [
4,
5,
6], but also increase stock prices [
7], and reduce debt costs [
8]. A better ESG performance can also reduce the enterprise risk [
9,
10] and the cost of capital [
11]. Therefore, promoting sustainable social development, and improving enterprises’ self-value requires extensive research, to explore the antecedents of corporations’ ESG performance, and thus answer the question of why some corporations have a higher ESG performance, while other corporations have a lower ESG performance.
In the existing literature, some factors are found to be related to corporations’ ESG performance. Aside from the external environment, board structure, and executives, which are intuitively related with a corporation’s ESG performance, and have been well researched [
12,
13], the impact of the corporate ownership structure should not be ignored. A firm’s ownership influences its resource base and governance effect, as well as its strategic choices [
14,
15]. Previous studies have found that foreign ownership, as well as institutional ownership, have an impact on a corporation’s ESG performance, but the findings are inconsistent [
3,
16]. These studies proved the link between ownership and ESG empirically, and reinforced the idea that different ownership might have a different impact on enterprises’ ESG.
However, although state-owned equity is a common type of equity, it has not yet been researched well as an antecedent of ESG performance. It is widely believed that state-owned equity provides enterprises with competitive benefits, such as increased legitimacy, resource support, and priority when it comes to policymaking [
17]. State-owned equity plays a significant role in managing strategic industries, rescuing companies from the risk of bankruptcy, and fostering company growth [
18]. As a result, it has become a useful tool for governments in emerging economies, such as China, Russia, Vietnam, and Brazil, to influence economic activities [
19]. Using the various resources provided, enterprises have an economic foundation for sustainable development, with the help of state ownership. Moreover, differently from other types of shareholders, such as institutional, family, or foreign shareholders, state shareholders naturally focus on public interest [
20], which may also lead them to emphasize environmental, social, and economic sustainability more greatly compared to other types of shareholder.
In practice, there are two types of state-owned equity. In the first case, the state is the owner or controlling stakeholder of an enterprise, making the enterprise either a state-owned or state-controlled enterprise [
17]. In the second instance, state-owned equity takes the role of the large shareholder, rather than the controlling shareholder, in an enterprise. Although the equity does not have control over the company, it will still have influence on the company, as the proportion of state-owned equity in the corporation rises [
20]. This second case condition, denoted as state-owned equity participation, is discussed at length in this study. Previous studies indicated that state-owned equity participation can improve enterprises in many aspects, for example, by bringing development opportunities [
21], alleviating financing constraints [
22], and increasing innovation [
23] and cash holdings in enterprises [
24]. The economic benefits brought by state-owned equity can theoretically help firms to have a greater ability to carry out sustainable development strategies. Moreover, state-owned equity, as the large shareholder in private enterprises, plays the role of monitoring the controlling shareholders. By alleviating the controlling shareholders’ opportunism, the state-owned equity improves the enterprise’s motivation in pursuing a long-term goal [
23]. However, as improving ESG performance is different to achieving an economic goal, research is still needed to examine whether state-owned equity improves ESG performance or not, why, and in what context such an effect is most significant.
In summary, research into the relationship between state-owned equity and ESG performance is clearly necessary. It may explore studies on the antecedents of ESG from an ownership perspective, while improving understanding of the consequences of state ownership, thus creating theoretical contributions. As to suggesting the managerial implications of the practice, if state-owned equity participation is proven to improve the ESG performance of enterprises, then the introduction of state ownership could be a feasible solution for various companies who want to be sustainable, but are constrained.
Our study aims to examine the relationship between state-owned equity participation in enterprises, and the enterprises’ ESG performance. The research used data on listed companies in China from 2013 to 2021 to conduct empirical tests. China provides an ideal context for research on state-owned equity participation. Since China proposed the development of a mixed-ownership economy in 2013, state-owned equity participation in enterprises has emerged as an increasingly common phenomenon in China. State-owned equity participation has thus become an emerging topic. The empirical results support the theory that state-owned equity participation can significantly improve ESG performance. Additionally, to clarify why state-owned equity affects ESG performance, this study examines the mediating role of top management incentives in this relationship. The results show that state-owned equity participation can enhance top management incentives, thereby leading to a greater focus on the company’s sustainable development and ESG performance. In order to research what types of enterprise are most suitable for the introduction of state-owned equity, our study also analyzes how heterogeneity within enterprises may influence the relationship between state-owned equity participation and ESG performance. The results show that state-owned equity participation in firms which have a larger size and higher degree of digital transformation has a more significant effect on ESG performance.
The contributions of this study include the following four points. Firstly, existing research has found that the ownership structure is a considerable factor influencing corporate ESG performance [
3,
16]. However, different ownership structures produce different effects. Our paper discusses the impact of the state-owned equity participation in an enterprise on the ESG performance, and enriches the relevant research into the antecedents of ESG. Moreover, we have identified the mediating role of top management incentives in the relationship between state-owned equity and ESG performance, which has been overlooked in previous studies. Secondly, additional research on complex ownership structures with multiple shareholders has been provided in this article. This study offers new evidence to respond to the debate over whether the joint effect of multiple large shareholders is synergistic or antagonistic. The basic model of the relationship between state ownership and ESG performance supported the synergistic view, while the heterogeneity test indicated that the antagonistic view should not be overlooked. Thirdly, existing research has explored the diversified effect of state-owned equity participation on private enterprises, mainly in pursuing economic goals [
21,
22,
23,
24]. Differently to the existing findings, we clarify how state-owned capital and private capital achieve effective synergy in achieving the comprehensive sustainability goals. The findings of this study add to the existing field of research regarding the impact of state-owned equity on corporate non-financial performance. Finally, our research expanded the agency theory and resource-based view. On the one hand, this study indicates that state-owned shareholders can act as effective monitors to alleviate the principal–principal conflict in private enterprises. On the other hand, our findings on the mediating role of top management incentives in the relationship between state-owned equity and ESG expand the current understanding of how shareholders influence managers, and how managers influence corporations’ non-financial performance, using the logic of mitigating principal–agent problems. Additionally, our research contributes to the resource-based view’s application in ESG [
25]. We have found that the impact of state-owned equity participation on ESG depends on the heterogenous resources and capabilities of the firm in its pursuit of ESG.
The remainder of the paper is organized as follows. In
Section 2, the literature review and the development of hypotheses are presented. In
Section 3, the research methodology and data are presented. In
Section 4, the empirical results are illustrated, and in
Section 5, our conclusions are drawn.
5. Conclusions and Discussion
5.1. Research Conclusions
This study empirically examined the effect of state-owned equity participation on ESG performance, using data listed on A-share listed companies from 2013 to 2021 as the research object. It also discussed the intermediary mechanism of this path, and the heterogeneity of the impact of state-owned equity on ESG, when entering different types of enterprises. The following conclusions were reached.
Firstly, state-owned equity can significantly improve enterprises’ ESG performance. This conclusion remains valid after a series of endogeneity and robustness tests. Secondly, top management incentives mediate the relationship between state-owned equity participation and ESG performance. Thirdly, the effect of state-owned equity on ESG performance is more significant in large and high-digital-transformation enterprises.
5.2. Contributions
Our research made contributions in the following aspects.
Firstly, this study extended the antecedents of ESG studies, by examining state- owned equity participation. Previous studies had recognized that foreign ownership and institutional ownership might matter in corporations’ ESG [
3,
16]. Our studies adopted the agency theory and RBV to discuss how and why state ownership matters in ESG affairs. The difference between the impact of state ownership and other ownership on ESG is that state ownership naturally cares about the public interest. This means that the state-owned equity exert their influence to direct the corporation more sustainably, directly through the shareholders’ governance mechanism. This contributes to a more comprehensive understanding of the underlying logic of why ownership matters in a corporation’s sustainable development. Moreover, we identified the mediating role of managerial compensation in the relationship between ownership and ESG performance, which had been overlooked in previous studies. This finding enriched our understanding of why the ownership influenced corporations’ ESG through the new mechanism.
Secondly, the research contributed to the complex ownership structure literature by emphasizing the existence of multiple large shareholders [
36], and examining how large shareholders interact with each other. Compared to the simple dichotomy of ownership types into enterprises that were state-owned and those that were not [
17], we emphasized the cases of enterprises in which state ownership took the role of large shareholders, rather than controlling shareholders. Whether the joint effect of multiple large shareholders is synergistic or antagonistic is still the subject of debate, especially when the ownership type is different. Our research showed evidence for both sides. Although the basic model of the relationship between state ownership and ESG performance supported the synergistic view, the heterogeneity test told a more complex story. Our work indicated that when state-owned equity participated in large enterprises, or companies with a high degree of digital transformation, the effect on ESG performance was greater than that of small or medium-sized enterprises, or enterprises with a low level of digital transformation. The latter cases were where it was more difficult for the state-owned equity to reach agreement with the other shareholders toward being more sustainable, when the firm had a weak resource base. In these cases, the antagonistic effect neutralized the synergistic effect. Our study inferred that, although the synergistic view of joint effect between different ownership types of large shareholders is the mainline, the antagonistic view of joint effect should not be ignored in some situations.
Thirdly, the research contributed to the state ownership literature by pointing out its specific value in maintaining sustainability at the corporation level, the environmental level, and the society level. Although the privatization of SOEs has been a more noticeable phenomenon in the existing research, the participation of state-owned equity in the private enterprises has emerged, and is also necessary to explore well. Previous studies have recognized the benefit of state-owned equity mainly in the economic-based criteria, decisions, and outcomes of financial performance [
22,
23,
24]. Our research emphasized the value of state ownership in improving firms’ non-financial performance, and a more sustained corporation performance [
42]. Our findings infer that the participation of state ownership does not only work as a temporary remedy measure, but also works as a long-lasting ownership arrangement, which helps society and the environment, has sustainable outcomes, and improves overall welfare.
Fourthly, our research extended the agency theory and the resource-based view. In one aspect, this study supplemented the line of principal–principal conflict research, by proving that state shareholders could be an effective monitor in private firms to, counterbalance opportunism in non-financial performance, as well as in financial performance. Additionally, our findings on the mediating role of management compensation in the relationship between state ownership and ESG extended the current understanding of how shareholders influence managers. In addition to the direct monitor effect commonly recognized in previous studies, this study argued that shareholders also influenced the managers’ motivation in pursuing non-financial performance in an indirect way, by deciding the ideal incentives of management. Therefore, our research extended the line of principal–agent research. Moreover, our study also contributed to the resource-based theory. In addition to emphasizing the necessity of corporations’ resource base in pursuing ESG performance, our study provided evidence that whether state-owned equity participation had a significant positive influence on ESG also depended on the firms’ resource and capability conditions in pursuing ESG. Hence, our study contributed to the resource-based view, by discussing firms’ resource heterogeneity in addressing ESG challenges, which has been one of the recent exciting new areas in RBV [
25].
5.3. Managerial Implications
Firstly, this study found that state-owned equity could improve corporate ESG performance; this suggests that companies should consider introducing state-owned equity as a shareholder, if they are aiming to be more sustainable. From the government’s perspective, encouraging state equity participation can be an effective way to encourage more businesses to adopt ESG practices.
Secondly, top management incentives are an essential intermediary mechanism through which state-owned equity affects enterprises’ ESG performance. When top management members receive higher salary incentives, they are more likely to take the growth of the company and the company’s long-term success into account, and to support ESG performance. Therefore, when state-owned capital invests in a company, it is necessary to adjust the compensation available to top management. This can provide the necessary breakthrough to improve internal management. If a company expects to improve its ESG performance, but does not receive investment from state-owned capital, it can also achieve ESG enhancement by raising the salaries of top management.
Thirdly, it is better for state-owned capital to choose large enterprises or high digital transformation enterprises as the target companies for investment. State-owned equity may encounter less resistance from these two types of enterprises in promoting ESG and sustainable development; hence, they can play a more active role in impacting ESG performance.
5.4. Limitations and Directions for Future Research
Firstly, in addition to the size of the enterprise and its digital transformation, other enterprise characteristics may also affect the role of state-owned equity in ESG performance. The industry in which the company is located, and the life cycle of the company’s development may also affect the company’s ESG performance, which is a direction that future studies could take. The positive impact of state-owned equity participation on the ESG performance may not only be moderated by internal factors, but also by the macro-environmental factors surrounding these enterprises, such as industry competition intensity and relevant government policies. This aspect could be a direction for future research.
Secondly, as well as increasing the remuneration of top management members, state-owned equity participation may impact other unobserved factors that might improve the ESG performance of enterprises. These factors might act as mediating variables, and testing for additional variables in future research could help to shed more light on this issue.
Thirdly, it is still worthwhile to explore how state-owned equity participation affects companies through existing governance mechanisms. The details of which mechanisms can best enhance the governance effectiveness of ESG are unexplored. It is unknown whether it would be more efficient for state-owned equity to only participate in shareholder meetings, to appoint representatives to occupy board seats, or to join the existing management team of private enterprises. The answers to this detailed question are expected to provide further insights on whether the joint effect between state shareholder and other types of shareholders is antagonistic or synergistic.
Fourthly, for studying the relationship between the ownership and ESG from RBV, this paper is just a starting point. Subsequent research could explore the impact of different types of shareholders’ differentiated resources on ESG, as well as their accumulation and supplementation around ESG.
Finally, corporate ESG scores have certain limitations when used as a measure of corporate sustainability. Some companies deliberately improve their ESG scores through donations, media publicity, and so on. These may not, in fact, contribute to improved sustainability. Future research should focus on using more valid measurements when replicating the experiments conducted in this study.