Examining the influence of institutional investors on the readability of environmental disclosure in CSR reports of Chinese listed firms

Abstract Environmental disclosure conveys non‐financial information primarily through narrative descriptions. The readability of such narratives affects the effectiveness of environmental communication and shapes information content. Prior research on the influence of institutional ownership on corporate disclosure strategy remains inconclusive due to the heterogeneity of institutional investors. In this study, we analyze a comprehensive sample of A‐share Chinese companies that issued corporate social responsibility (CSR) reports to examine the impact of institutional investors on the overall readability of environmental disclosure. Our findings indicate that long‐term institutional investors have a positive influence on the readability of environmental disclosure, while short‐term institutional investors do not show significant correlation with readability. Furthermore, corporate governance acts as a mediating factor in the relationship between long‐term institutional investors and readability. We also find that long‐term institutional investors can enhance firm value by improving the readability of environmental disclosures.