Can Multiple Large Shareholders Mitigate Environmental, Social, and Governance (ESG) Controversies?

• Published in: World
• Main Authors: Xiaolu Feng, Norman Mohd Saleh, Kamarul Baraini Keliwon, Aziatul Waznah Ghazali
• Format: Article
• Language: English
• Published: MDPI AG 2025-02-01
• Subjects: multiple large shareholders; ESG controversies; agency conflicts; firm value
• Online Access: https://www.mdpi.com/2673-4060/6/1/25

This study examines the effect of multiple large shareholders (MLS) on environmental, social, and governance (ESG) controversies and the factors that moderate this relationship. It is motivated by the need to understand the determinants of ESG controversies and the lack of consensus in the academic literature regarding the corporate governance role of MLS. Using a panel dataset of Chinese-listed firms from 2008 to 2023, we found that firms with MLS have fewer ESG controversies than non-MLS firms, including those in the environmental, social, and governance dimensions. The findings are robust across different model specifications and alternative variable measurements. Further analyses revealed that the effect of MLS on ESG controversies is more pronounced when the ownership distribution between non-controlling MLS and the controlling shareholder is more balanced, when they have the same identity, and when institutional investors are part of non-controlling MLS. Additionally, this effect is stronger in firms with severe agency conflicts and weaker governance mechanisms. Finally, and more importantly, we found that ESG controversies have a significant negative impact on firm value and that MLS monitoring can help mitigate these adverse effects. In summary, our results suggest that MLS play a monitoring role in ESG controversies and contribute to firm value by reducing their negative consequences.