State shareholding in privately-owned enterprises and their ESG performance: Evidence from China

Utilizing Chinese mixed ownership reform that allows state-owned equity to participate in privately-owned enterprises (POEs), we find that ESG performance of POEs is enhanced with increased state shareholding. Mechanism tests demonstrate that state shareholding alleviates agency problems and financial constraints faced by POEs, thereby leading to enhanced ESG performance. Heterogeneity tests show that the positive impact is more salient among POEs with less aggressive business strategies, as well as those operating in monopolistic and lightly polluting industries. Additionally, by separating three individual components of ESG, we find that the positive impact is salient on social (S) and governance (G) performance.