Beyond borders and industries: How cross-ownership drives ESG performance in China’ low-polluting firms after environmental regulation

Abstract

This study investigates the influence of cross-industry common shareholders, those owning stakes in both high- and low-polluting industries, on the environmental, social, and governance (ESG) performance of low-pollution firms in China, utilizing the implementation of Chinese new environmental protection law (new EPL) as a quasi-natural experiment. We leverage a large panel dataset from 2010 to 2020 and employ the Difference-in-Differences (DID) methodology to establish causality. Our findings reveal that the new EPL has a more pronounced positive impact on ESG performance in high-polluting firms compared to low-polluting ones. Importantly, cross-industry common ownership significantly enhances ESG performance in low-polluting firms post new EPL, suggesting a synergistic benefit arising from shared ownership across industries. Furthermore, we demonstrate that non-state-owned common shareholders have a stronger positive ESG impact, particularly for non-state-owned portfolio firms. We also reveal that foreign common ownership, stronger government environmental supervision, and more analyst attention strengthen the positive influence of common shareholders. Additionally, we identify that enhancing the green innovation activities of low-polluting firms represents a potential pathway through which common shareholders improve the ESG performance of these firms. Our research offers new insights on promoting ESG practices through cross-industry ownership structures.