Multiple Large Shareholders and ESG Performance: Evidence from Shareholder Friction

Abstract

Sustainable corporate governance increasingly influences corporate strategy considerations. Effective governance ensures organizational sustainability, with ESG being a crucial component. Large shareholders, as direct stakeholders, have a key role in developing and implementing corporate ESG strategies. Using data on Chinese listed firms over the 2011–2022 period, we find that multiple large shareholders (MLS) depress company ESG performance, suggesting that MLS may lead to friction and high coordination costs. Interestingly, stronger controlling shareholders mitigate this negative impact, particularly when they are state-owned. Our analysis shows that relatively equal power among MLS exacerbates friction, resulting in unstable executive teams and higher internal pay gaps, which lower governance (G) and social (S) scores. However, the presence of foreign and institutional investors among the large shareholders can alleviate these issues. The negative effect of MLS on ESG is significant in firms operating in clean industries, those with low analyst attention, or those not part of the “Stock Connect Scheme”. This study highlights the drawbacks of MLS in sustainable corporate governance from an ESG perspective.