Institutional Co-Ownership and Corporate Sustainability: Financing Constraints and Governance Dynamics in China

This study explores the influence of institutional co-ownership (IcO) on corporate sustainability performance, aiming to elucidate the mechanisms through which institutional investors drive sustainable business practices. Using a panel dataset of 2,395 publicly listed Chinese firms from 2010 to 2020, and grounded in stewardship theory and the resource-based view, the study finds that IcO is positively and significantly associated with firms' overall sustainability performance. Four distinct proxies of IcO consistently demonstrate this relationship across multiple regression models. The findings suggest that institutional co-investors actively participate in corporate governance, serving as a robust external governance mechanism that promotes sustainable and responsible business practices. Furthermore, a mediation analysis reveals that IcO enhances sustainability performance in part by alleviating firms’ financing constraints. These results highlight a critical mechanism—resource access—through which IcO enables long-term sustainability initiatives. Robustness is confirmed through lagged regressions, alternative ownership thresholds, propensity score matching, and system GMM estimation. The study offers practical insights, recommending that policymakers encourage institutional investor involvement in corporate governance and foster regulatory environments that incentivize sustainability practices.