Heterogeneous institutional investors, environmental information disclosure and debt financing pressure

Because heterogeneous institutional investors may have diverse influences on firms’ financing problems, it is of practical significance to identify the different governance effects of heterogeneous institutional investors on debt financing pressure of firms. By studying 4355 listed firms of the Chinese Main-Board Market from 2013 to 2018, we systematically investigate the different governance effects of institutional investors on debt financing pressure (i.e., debt financing constraints and debt financing costs) by simultaneously considering the characteristics of the shareholding and the portfolio of institutional investors, and clarify whether environmental information disclosure can be an effective tool to attract institutional investors to participate in governance activities. Results show that: (1) Institutional investors with relatively independent shareholding and higher portfolio concentration can mitigate debt financing pressure as indicated by the negative correlation between pressure-resistant institutional investors’ portfolio concentration and firms’ debt financing pressure; (2) Environmental information disclosure exerts a mediating effect between the relationship of pressure-resistant institutional investors’ portfolio concentration and debt financing costs; and (3) Pressure-resistant institutional investors with higher portfolio concentration can reduce debt financing costs in high-polluting industries and mitigate debt financing constraints in low-polluting industries by improving the environmental information disclosure of firms. They can also reduce the debt financing costs of private-owned firms by increasing the disclosure of environmental information, but the governance effects on state-owned firms are not significant. Our results not only provide new theoretical insights into the existing literature by exposing the different effects of heterogeneous institutional investors and exploring the signaling role of environmental information disclosure but also offer practical evidence for firms to mitigate the challenge of debt financing.