State-Owned Equity Participation and Corporations’ ESG Performance in China: The Mediating Role of Top Management Incentives

: This study examined the unique circumstances surrounding state-owned equity participation in enterprises in China. Speciﬁcally, this study examined the impact of state-owned equity participation on the environmental, social, and governance (ESG) performance of enterprises. Focusing on A-share listed ﬁrms on the Shanghai and Shenzhen Stock Exchanges, and using data from 2013 to 2021, the results of our empirical testing showed that state-owned equity participation could signiﬁcantly improve the ESG performance of enterprises, with this conclusion remaining reliable after a series of robustness tests. Top management incentives were a mediating mechanism for state-owned equity participation in enhancing ESG performance. This study also found that when state-owned equity participated in large enterprises, or companies with a high degree of digital transformation, the effect on the ESG performance was greater than in small or medium-sized enterprises, or enterprises with a low level of digital transformation. The ﬁndings of this study add to the current body of research on the factors inﬂuencing corporate ESG performance, and the impact of state-owned equity on corporate non-ﬁnancial performance


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 stateowned 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 stateowned 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.Stateowned 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 resourcebased 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.

Antecedents of Corporations' ESG Performance
Since the ESG score has become a key concern of investors in recent years, more and more research have tried to examine the antecedents of corporations' ESG.
First of all, environmental factors influence the ESG score.For instance, as economic and political uncertainties increase, companies are paying more attention to their ESG performance, in order to establish good relationships with various stakeholders [12].Secondly, board and management characteristics also attract scholars' interest.The presence of female directors in a company leads to an increased focus on ESG performance.Tamimi et al [13] also found that companies with gender-diverse boards, a larger board size, CEO duality, and executive compensation linked to ESG scores also performed better in ESG performance.Last but not least, the corporate ownership structure is regarded as an important factor influencing ESG performance.Hu et al. found that foreign ownership may enhance ESG disclosure [16].Yu et al. found that insider holdings may dampen ESG disclosure [4].Concerning institutional ownership, some researchers believe that this can improve ESG disclosure [3], while other scholars have presented evidence to the contrary [26].
In summary, there is relatively little research on the relationship between ownership and ESG performance.However, there have been several studies on the relationship between ownership and corporate social responsibility (CSR), which can serve as a foundation for our study.It is important to note that a corporation's ESG score reflects its overall performance in governance, as well as in environmental and social aspects [2].A high ESG score indicates that a firm is actively pursuing sustainability in the corporate, societal, and environmental dimensions, requiring engagement in CSR activities, and sound governance practices [10].Therefore, although CSR activities are related to ESG performance, it is still necessary for us to conduct specialized research on the relationship between ownership and ESG.
Diversified theories have been introduced to explain the antecedents of ESG performance, including stakeholder theory [3] and the theory of corporate ethics [27], and agency theory [28], among others.Meanwhile, another theory that has potential explanatory power for ESG performance is the resource-based view (RBV) [25].However, there is currently no empirical study applying the RBV to explain the antecedents of ESG.This study mainly focuses on the agency theory and resource-based view, to link ownership to ESG performance.
First is the agency theory.If organizations aim to achieve a high ESG performance, they have to make a trade-off decision between sacrificing short-term benefits for long-term sustainability, or achieving short-term goals [1].Owing to the information asymmetry and inconsistency of interests between the managers and the shareholders, the managers are expected to pursue the short-term economic-based return, which can be directly reflected in their performance, rather than their ESG score, owing to their opportunism [29].This kind of problem is a typical principal-agent problem.Moreover, there is also the principalprincipal problem between controlling shareholders and minority shareholders, particularly in emerging markets [30].Without a good solution to the principal-principal problem, controlling shareholders tend to expropriate the firm value through tunneling [31,32], rather than invest in improving ESG performance.The ownership structure influences the agency cost of alleviating principal-agent problems, as well as principal-principal problems.It is expected to influence corporations' motivation toward ESG initiatives.
Second is the resource-based view.According to the resource-based view, the variety of resources and capabilities constitutes a corporation's competitive advantage, and also influencing its strategic choices [33,34].In terms of ESG affairs, firms have to invest in both their engagement in CSR activities, and establishing governance.Hence, an abundance of corporation resources is required to pursue a high ESG performance.Otherwise, firms have to struggle with survival first, and are expected to have a lower ESG performance.As one type of corporation stakeholder, shareholders are important providers of strategic resources [35].Appropriate shareholders can address the resource constraint problem by providing strategic resources.
In summary, the ownership will theoretically influence a corporation's ESG, due to its governance effect and resource effect.This indicates that a reasonable ownership structure exists to help corporations pursue a high ESG performance, but it is, as yet, unexplored.

Complex Ownership Structure with State-Owned Equity Participation
Despite the typical ownership structures including those with a single large owner, or widely-held firms, complex ownership structures involving multiple large shareholders are emerging in the world [36].Widely-held firms suffer from a severe principal-agent problem [29].Although the large shareholder can take a relatively active and effective role in monitoring managers, firms with a single large shareholder also suffer from the principalprincipal problem [31].Regarding this issue, an ownership structure with multiple large shareholders is expected to be the ideal structure, solving both the principal-agent problem and the principal-principal problem.Attig et al. [37] found a positive relationship between multiple large shareholders and the firm value, supporting such an inference.However, difficulty in cooperating and reaching a consensus among large shareholders is recognized as the main downside of having multiple large shareholders [38], especially when the ownership type of the large shareholders is diversified [36].
Hence, whether the joint effect between different large shareholders with different ownership type is antagonistic or synergistic, a question arises.In current studies, Li et al. support the antagonistic view in the case of government forces and market forces [39], while Li et al. support the synergistic view in the case of family ownership and non-family ownership [28].In addition, Li et al. found an inverse U-shaped relationship between state ownership participation and innovation performance in family firms [40], supporting both the antagonistic and synergistic views.The inconsistent findings demonstrate the need for more research in different contexts, to try to find out the unknown rules.
State-owned equity participation is one of the typical cases in a complex ownership structure with multiple large shareholders [22].It means that the corporation has multiple large shareholders, where state-owned equity is one of the large shareholders, but not the controlling one.It is different from state-owned enterprises or state-controlled firms, where the state takes the controlling role in a corporation's ownership structure [17].
Numerous studies have examined whether state-owned equity participation benefits enterprises.Boubakri et al. found that state-owned shareholders can bring more economic resources and development opportunities to private enterprises [21].According to Li et al., state-owned equity encourages businesses to take strategic risks, by alleviating financing constraints and improving corporate governance [22].Yu et al. argue that stateowned equity enhances the capacity of private companies for innovation by providing additional research and development resources [23].State-owned equity participation can increase the cash holdings of enterprises, by scaling up debt financing, and reducing overinvestment [24].State-owned equity helps private businesses penetrate high-barrier industries [41].
The above studies focus on the impact of state ownership on the economic-based criteria, decisions, and outcome of financial performance.It would also be valuable to research the influence of state ownership in improving firms' non-financial performance.It has been found in the literature that state-owned equity participation can promote the performance of CSR [27,42]; however, its impact on ESG has not been well explored.Stateowned equity, which represents the public interest, is predicted to have a specific impact on ESG compared to other equity, and this deserves further study.

State-Owned Equity Participation and ESG Performance
According to the agency theory, owing to the information asymmetry and inconsistency of interests between large shareholders and minority shareholders, large shareholders, especially the controlling shareholders, tend to be opportunistic, which is detrimental to the development of a business [30,31].Multiple large shareholders can reduce principleprincipal conflicts [36].To safeguard the interests of the country they represent, state-owned shareholders have an incentive to effectively curb controlling shareholders, to reduce the occurrence of tunneling and other such opportunistic behaviors [43], and to effectively supervise the management, to reduce the incidence of inefficient behaviors due to personal gain [44].Moreover, as state ownership naturally cares about public interest, the stateowned equity will direct the corporation's decision-making toward being more sustainable, by directly exerting their influence through the governance mechanism.
Meanwhile, according to the RBV, an enterprises has a variety of resources and capabilities [33].It is these distinctive resources and capabilities, in turn, provide a business with a sustained competitive edge [34].In addition to providing financial resources, state-owned equity has strengthened the cooperation between enterprises and the government, owing to its intrinsic links with the state [45], which may boost a business' resource base, [46] benefiting the corporation's ESG performance.
In the next part of this study, we break down the three components of ESG, and explain how state-owned equity influences each of them.
Firstly, state-owned equity participation can promote the green governance of enterprises.Rather than depending on external policies to encourage enterprises to ascribe importance to environmental protection, corporate shareholders can influence enterprises from within the enterprise, and cultivate awareness of independent environmental protection [47].Compared to other types of shareholders, state-owned shareholders are more concerned about the public interest represented by environmental issues [48].Therefore, the greater the proportion of state-owned equity, the more influence it may have on the business, pushing the latter to prioritize environmental preservation.Additionally, by removing resource limits on green innovation investments, state-owned equity can considerably increase a firm's capacity for green innovation [49].The improvement of green innovation capabilities will undoubtedly encourage enterprises to save resources and protect the environment, which will also reduce production costs, and be conducive to sustainable development.
Secondly, state-owned equity participation can encourage enterprises to consciously assume social responsibility.Overemphasizing financial interests is a potential issue for private businesses, and it worsens when there is a lack of counterbalancing for the controlling shareholders.This could result in a disregard for other interests, and the public interest as a whole [50].State-owned capital focuses on both corporate profit, and public interest.State-owned equity can enhance the social responsibility of an enterprise, and this effect is stronger when state-owned capital is involved in a company's investment decisions and leadership [27].State-owned equity effectively counterbalances the tendency of controlling shareholders to neglect corporate social responsibility due to an excessive focus on financial gain [42].Providing a greater resource base can also help enterprises to assume greater social responsibility.
Finally, many studies have shown that state-owned equity can improve the governance of enterprises.Shi et al. found that enterprises with higher levels of state-owned equity had managerial agents that were less likely to commit security fraud [51].Xu et al. believe that the "one-man rule" of the controlling shareholders of family firms on the board of directors could be broken by the stationed directors of state-owned shares, and the governance role of the board of directors could be performed more equitably [52].Li et al. believe that under a certain shareholding ratio, state-owned equity can curb the unreasonable investment of the largest shareholders in enterprises [39].These conclusions indicate that state-owned equity optimizes the corporate governance of enterprises, and encourages them to pay more attention to sustainable and high-quality development.
In summary, this paper presents the following hypothesis.
Hypothesis 1. State-owned equity participation has a positive impact on corporate ESG performance.

Top Management Incentives, State-Owned Equity Participation, and ESG Performance
Apart from the financing and debt variables commonly used as the mediator in the state-owned equity participation literature [21,22], this study proposes the importance of management incentives that work as the mediator in the relationship between state-owned equity and ESG, through the logic of alleviating the principal-agent problem, according to the agency theory [53].
Executive motivation is an important factor influencing executives' decision-making behavior [54,55].Fair compensation is an essential means of reducing agency conflicts between principals and agents.Top management incentives encourage top management to consider the overall interests of the enterprise and shareholders when making decisions.They can also promote company innovation, because they harmonize the interests of shareholders and management, and increase the performance sensitivity of the management [56].
Top managers have an important impact on the ESG performance of the enterprise, due to their duty in the firm's strategic decision-making and execution.The motivation of top management to pursue ESG performance is not inherent.For instance, past research has found that the managers of small or medium-sized enterprises (SMEs) tend to increase the scope of their business for personal benefit, while such decisions may hinder the SMEs in achieving a good environmental performance [57].However, setting reasonable compensation incentives encourages senior management to place more emphasis on ESG performance.With appropriate incentives, enterprises' top management are expected to become more diligent [58].When compensation increases, the opportunity cost of top management turnover also increases.If top management members want to work for a company for a long time, they must pay more attention to the sustainability of the company, rather than the short-term benefits.Moreover, a higher salary motivates the managers to care more about the investors' concern.Since ESG scores have now become an indicator of concern for an increasing number of investors, managers are predicted to emphasize ESG more than before, when they have enough incentives.
Based on the above analysis, the following hypothesis is proposed: Top managements' incentives mediate the relationship between state-owned equity participation and corporate ESG performance.

Firm Size, State-Owned Equity Participation, and ESG Performance
The size of an enterprise has a significant impact on the strategic decisions it makes [59].In general, large companies have more financial resources and human capital than small businesses; therefore, they may have more resources available through which to undertake social responsibility [60].Large companies also tend to have higher ESG scores, because of their longer-term strategic planning and superior funding [61].Therefore, in large companies, it is easier for providers of state-owned capital and other shareholders to reach an agreement to improve the corporate ESG, thus allowing the maximum benefit to be extracted from the positive aspects of state-owned capital, and promoting the ESG performance of large companies.Small businesses, on the contrary, have difficulty implementing the idea of sustainable growth, because they lack operational experience, and face a higher risk of failure.Because of the inherent difficulties in ensuring cooperation between stateowned and non-state-owned capital, owing to the different nature of ownership [62], even if the providers of state-owned capital are willing to promote ESG investment, it is difficult to change the will of the shareholders of small or medium-sized enterprises.In fact, it is more likely to cause conflict between shareholders, owing to the different interest demands, and thus would partially offset the positive role that state-owned capital should play.
Based on the above analysis, this study proposes the following hypothesis: Hypothesis 3. Compared with small and medium-sized enterprises, state-owned equity participation has a more significant effect on the promotion of large enterprises' ESG performance.

Digital Transformation, State-Owned Equity Participation, and ESG Performance
In recent years, digital transformation (DT) has become an important topic in the study of corporate strategy [63].The outbreak and continuation of the coronavirus pandemic have further accelerated the digitalization process.Studies have shown that enterprises with a high degree of digital transformation tend to have better innovation capabilities [64], and high operational efficiency [65].Their share price is relatively stable, and the risk of crash is lower [66].According to the resource-based view, digital transformation itself is a technical resource, which helps to strengthen coordination and communication between departments [67], improving corporate governance capabilities.DT can also filter unnecessary resources within the organization, reduce resource waste, and promote the green development of enterprises.Therefore, high-DT enterprises tend to show a relatively better ESG performance [68].These characteristics are in line with the requirements for the sustainable development of state-owned capital.Therefore, when state-owned equity participates in high-digital-transformation enterprises, promoting the ESG performance for these enterprises is relatively easy, due to these enterprises' strong willingness and capacity to pursue sustainability.Enterprises with a low degree of digital transformation, due to insufficient technology or certain pollution, may lack willingness to practice green governance.When state-owned equity takes a stake in these enterprises, it can be challenging to reach agreement with the original shareholders on green and sustainable growth, and cooperation between the two can be problematic.In summary, this paper makes the following hypothesis.Hypothesis 4. Compared with low digital transformation enterprises, state-owned equity participation has a more positive effect on the ESG performance of enterprises with high digital transformation.

Sample Selection and Data Sources
In 2013, China proposed the development of a mixed-ownership economy.Therefore, this study used data on A-share listed companies in Shanghai and Shenzhen from 2013 to 2021.A-share companies are domestic Chinese companies that issue stocks in China's domestic stock market.The data samples used were processed as follows.(1) Samples in which the controlling shareholder was not state-owned at the time of listing were selected.
(2) Listed companies in the Special Treatment and *ST categories were removed, to exclude the potential for unusual results brought on by financial hardship.(3) Samples from the financial industry were excluded.(4) Samples with data missing from the main variables were omitted.(5) In order to avoid the influence of extreme values, continuous variables were winsorized.
The ESG score data in this article came from the Sino-Securities (SNSI) ESG Index, using the WIND Financial Terminal.The information on state equity participation and strategic change was obtained from the China Stock Market and Accounting Research (CSMAR) database.Other data provided were also obtained from the CSMAR.

The Dependent Variable
The ESG performance (ESG) was the dependent variable.Drawing on the research of Chang [69] and Li et al. [4], this study used the SNSI ESG rating system published by the Sino-Securities Index Information Service (Shanghai, China) as the dependent variable in the regression model.The establishment of the ESG index system of Sino-Securities refers to the mainstream ESG evaluation framework used internationally, and combines the characteristics of various listed companies with the actual situation in China's capital market, to identify key indicators.The weight of different key indicators of the enterprises are adjusted according to their industry, which is updated quarterly, and includes all the listed companies.Compared with other ESG evaluation systems in China, the SNSI ESG score covers a relatively large number of listed companies, and covers more years.Therefore, using the SNSI ESG score to measure cooperation ESG performance in China can increase the reliability of our research.The ESG evaluation index of Sino-Securities is AAA, AA, A, BBB, BB, B, CCC, CC, and C, accounting for nine levels in total.Accordingly, this study assigns a corresponding value from 9 to 1 as an ESG score.The higher the score, the better the corporate ESG performance.Because of the lag in the timeliness of enterprise ESG scores, the need for a certain period of time to see the effects on enterprises after state-owned equity participation, and the need to avoid the endogeneity problem of mutual causation, this study utilized a one-period lagged process to manipulate the dependent variable.

Independent Variables
The state-owned equity participation was the study's independent variable.Drawing on the research of Guo [42] and Luo et al. [22], this study defined shareholders identified as "state-owned legal persons" or "states" as state-owned shareholders, and used two indicators to measure the level of state-owned equity.Firstly, we used the shareholding ratio of state-owned equity (State1); that is, the sum of the shareholding ratios of stateowned equity among the top ten shareholders.The second was the equity balance (State2); that is, the ratio of the state-owned equity shareholding ratio to the non-state-owned equity shareholding ratio among the top ten shareholders in an enterprise.Using these two methods to measure state-owned equity could more accurately explain the participation of state-owned equity, and increase the robustness of this study.

Mediating Variable
Top management incentives comprised the mediating variable.Drawing on the research of Zhou et al. [70], this study measured top management incentives (Salary) using the natural logarithm of the total monetary compensation of the top three levels of management.

Control Variables
Citing the body of literature on state-owned equity participation [16,22], this study controlled for the influence of the following factors: enterprise size (Size), enterprise age (Age), enterprise growth (Growth), assets-liabilities ratio (Lev), and largest shareholding ratio (First).Equity incentives can increase the motivation of company executives and employees, which in turn has an impact on corporate ESG, so we added equity incentives (Inc) to the control variables.When the enterprise had an equity incentive plan in the current year, this variable was 1; otherwise, it was 0. Considering that the concept of ESG is related to the level of economic development of enterprises 'location, we added, as a control variable, a dummy variable that measured whether the corporate headquarters was in eastern China (East), because the economic development level of China's eastern region is higher than that of other regions.Because the separation of control and ownership held by the ultimate controller affects the degree of decision-making regarding the enterprise, the difference between control and ownership (Sep) was added to the control variables.
Furthermore, as ESG performance is inseparable from corporate strategic planning, this study referenced the work of Zhang and Rajagopalan [71] by using the financial leverage, advertising investment intensity, research and development investment intensity, fixed-asset ratio, period expense ratio, and inventory level to measure the degree of strategic change in an enterprise (Tra).The variance (∑[t i − T] 2 /[N − 1]) of each of the above indicators was measured over a period of five years (T − 1, T + 3).The annual variance obtained was then normalized based on the industry.The above six standardized indicator values were added together to obtain the annual strategic change index of each enterprise.The annual fixed effects and industry fixed effects were also controlled.Table 1 provides a thorough explanation of the control variables.

Model Building
In order to verify hypothesis H1, model ( 1) is constructed below: This study developed mediating effect models ( 2) and ( 3) to test Hypothesis H2, which examines the mediating role of top management incentives in the mechanism of state-owned equity participation to promote ESG performance: ESG i+1,t = γ 0 +γ 1 State i,t + γ 2 Salary + ∑ γ j Controls i,t + Year + Ind + δ (3) where i and t represent the enterprise and the year, respectively; State represents State1 or State2 in the model; Controls represents all control variables in the model; j represents the number of control variables; α 0 represents the constant terms; α 1 represents the regression coefficient of each variable; α j represents the coefficients of the control variables; µ, ε and δ represent random error terms.

Descriptive Statistics
Table 2 reports the results of the descriptive statistics of the main variables.The average ESG score of an enterprise was 4.022, which indicates that there is great potential for improvement in the overall ESG performance level of Chinese enterprises.The ESG score ranged from 1 to 8, with 1 being the lowest, and 8 being the highest.As a result, there were significant disparities in the ESG scores among the listed businesses, with these variations offering a favorable setting for this study.The mean values of the state-owned equity and equity balance were 0.033 and 0.041, and the standard deviation was 0.070 and 0.099, respectively.This shows that while state-owned equity participation in enterprises is typically not high, it varies greatly between enterprises.In addition, the coefficient of variance expansion between the respective variables was tested.The results show that the VIF values were all less than 4, indicating that multicollinearity was not a problem in our regression analysis.Column (1) of Table 3, which presents the regression results with only the control variables, shows that most of the control variables significantly affected the ESG performance.This demonstrates that the control variables were carefully selected.Columns ( 2) and ( 3) present the results obtained when including state-owned equity as an independent variable in the regression model.As can be observed from the data, the coefficients of State1 and State2 were both significantly positive, indicating that state-owned equity participation can significantly improve ESG scores.State1 had a coefficient of 0.3275 and State2 had a coefficient of 0.2173, indicating that state-owned equity participation has a positive impact on corporate ESG performance.Thus, H1 was verified.

Mediating Effect: Top Management Incentives
Columns (1-4) of Table 4 show the results of the regression, using top management incentives as the mediating variable, and following Equations ( 2) and (3).Columns ( 1) and (3) show that when top management incentives are used as the dependent variable, the coefficients of State1 and State2 are significant at the 1% level.Additionally, when top management incentives are added to the benchmark regression model as a control variable, it can be seen from Columns ( 2) and ( 4) that its coefficient was also significantly positive at the 1% level, suggesting that executive incentives may act as a mediating factor between state-owned equity and ESG performance.State-owned equity increases top management salaries, reduces top management opportunism, and puts greater emphasis on the long-term sustainability of the organization.Considering that there is a certain bias in the stepwise test regression coefficient method, with reference to the work of Hayes et al. [72], the bootstrap (N = 1000) method was used to test whether top management incentives had a mediating effect on state-owned equity participation and ESG performance, as summarized in Table 5.As rows (1) and (2) of Table 5 show, at the 95% confidence level, the confidence interval of the indirect effect of executive incentives did not contain 0 for either State1 or State 2, which once again proved the existence of the mediation effect, assuming that H2 is verified.
In addition, in order to ensure the robustness of this result, we replaced the measure of top management incentives, using the natural logarithm of total compensation for all top management members, and then conducted the bootstrap test again.The result remained unchanged.This test further verified hypothesis H2.The sample was divided into large enterprises, and small and medium-sized enterprises (SMEs) based on the annual industry median of the company size, to test hypothesis H3, which stated that state-owned equity participation would have a better effect on the promotion of large enterprises' ESG than on that of small and medium-sized enterprises.Regression analysis was performed using Equation (1), after the grouping of the samples.As can be seen in columns ( 1) and ( 2) of Table 6, the coefficient of State1 and State2 in large enterprises was significantly positive at the 1% level, while the coefficient was not significant for small and medium-sized enterprises (columns (3) and ( 4)).This suggests that in comparison to small and medium-sized enterprises, state-owned equity participation in large enterprises has a more pronounced impact on ESG performance.Thus, H3 is verified.Table 6.Analysis of heterogeneity based on firm size and digital transformation.

The Impact of State-Owned Equity Participation and Enterprise Digital Transformation on ESG Performance
To test H4, the variable "Degree of digital transformation" (DT) was used.The data was collected from the CSMAR database.This was measured by tracking the frequency of terms associated with this variable in a company's annual report.Next, we took the median degree of digital transformation of the entire sample, and divided the enterprises into high and low digital transformation enterprises, according to the median.Formula (1) was selected once more for the regression.Columns (5) to (8) of Table 6 show that in the high-digital-transformation group, both state1 and state2 had coefficients that were significantly positive at the 10% level, whereas in the low digital transformation group, the coefficients for both variables were not significant.This indicates that when state-owned equity participated in enterprises with high digital transformation, the ESG improvements became more obvious.

Endogeneity and Robustness Test 4.5.1. Endogeneity Test
Firstly, according to Li et al. [73], to eliminate systematic differences in the observable control variables between enterprises with and without state-owned equity participation, the propensity score matching method (PSM) was adopted, to address the sample selfselection problem.The control variables in this study were consistent with those in the benchmark regression model.The observation value that included state-owned equity was used as the treatment group, with the observation value that did not include state-owned equity used as the control group.Radius matching (r = 0.01) was the approach used for matching.The empirical findings of the regression analysis employing the matched samples are shown in columns 1 and 2 of Table 7.The fact that State1 and State2's coefficients were statistically positive showed that the sample selectivity bias did not significantly affect the findings, and confirmed that state-owned equity could boost ESG performance.Secondly, considering the possibility of reverse causation between state-owned equity participation and ESG performance, or the absence of significant variables in the model, according to Li et al. [40], this study used an instrumental variable to examine the main hypotheses.The two-stage least-squares method was used for the regression, and the average shareholding ratio of private Chinese listed companies in the same industry and year (State-m) was chosen as the instrumental variable of state-owned equity.The results of the first-stage coefficients are shown in columns 3 and 5 of Table 7. State-m was significant at the 1% level.The results shown in columns ( 4) and (6) of Table 7 showed that the coefficients of State1 and State2 were significantly positive, and the signs were consistent with the results of the benchmark regression.The first-stage regression weak instrumental variable test also yielded findings greater than 10, rejecting the null hypothesis that there were no weak instrumental variables.These findings demonstrate that the conclusions of this study remain valid even after employing instrumental factors to address potential endogeneity issues.

Robustness Test
Firstly, owing to the bias of the OLS (ordinary least squares) regression model, it was also necessary to apply other models, to ensure robust results.Referring to the work of Yang et al. [74], the primary hypothesis was re-regressed using the Poisson regression model, because the ESG score was a counting variable, and the value did not contain 0. Columns (1) and (2) of Table 8 show that State1 and State2 were both significantly positive, once again proving the main hypothesis.Secondly, considering that the ESG score of enterprises had a certain lag in timeliness, even under the premise of lagging the dependent variable by one period, because the effect of state-owned equity participation could not be accurately quantified, there may still be reverse causation problems regarding the ESG score of the next period.At the same time, to explore whether the effect of the ESG score improvement after 2-3 years of state-owned ownership participation was more obvious, the ESG data with lag 1 and lag 2 were used for regression, with the results shown in columns (3)(4)(5)(6) of Table 8.The results in Table 8 show that the coefficients of State1 and State2 were significantly positive at the 1% level, which indicates that after state-owned equity participation, the improvement effect on ESG performance was more obvious over time.This further proved the robustness of the main conclusions of this study.
Thirdly, in order to further enhance the reliability of the main conclusions, the benchmark model was re-regressed, after the replacement of the dependent variable.We ran the regression using the WIND ESG score provided by Wind Financial Terminal as the dependent variable, according to Equation (1).On the basis of in-depth research on international standards and guidelines, including ISO 26000, SDGs, GRI Standards, SASB Standards, and TCFD Recommendations, as well as the policy and current status of ESG information disclosure by Chinese companies, Wind Financial Terminal has developed a unique ESG rating system for Chinese companies, leveraging its strong capabilities in data collection, analysis, and processing.As seen in the first and second columns of Table 9, the results showed that the coefficients of State1 and State2 were both significant at the level of 1%, which further verified the robustness of the main conclusions.
Finally, to mitigate the effect of sample autocorrelation on the regression results, we regressed the main conclusions using heteroskedasticity and autocorrelation consistent (HAC) robust standard errors [75].As seen in the third and fourth columns of Table 9, the results showed that the coefficients for both State1 and State2 were significantly positive, which again proved the robustness of the benchmark regression.

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.

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].

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.

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 macroenvironmental 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, stateowned 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.

Table 1 .
Description of variables.

Table 2 .
Descriptive statistics of the main variables.

Table 3 .
The main regression results.

Table 4 .
The regression results of the mediating effect.

Table 5 .
The mediating effect test based on the bootstrap method.

Table 7 .
The endogenous test.