Do foreign institutional investors curb carbon emissions? Evidence from an emerging economy

Abstract

This study examines the effect of foreign institutional investors on corporate carbon emissions of Chinese listed firms from 2010 to 2019. Our findings support the monitoring view of foreign institutional ownership and find that foreign institutional investors have a negative effect on corporate carbon emissions. Our results remain robust to a battery of endogeneity tests, including the instrumental regression model, the Heckman selection model, and the PSM-DID (propensity score matching and difference-in-differences) method. Moreover, we find that foreign institutional investors from regions with strong green innovation exert a more substantial negative impact. Further analyses show that the negative effects are more significant for firms with agency problems and information asymmetry. Our research highlights the critical role that foreign institutional investors play in addressing environmental issues in emerging economies and provides valuable insights into this phenomenon.