We investigate the impact of family equity holdings on three indicators of corporate social responsibility: environmental, social, and governance (ESG) rankings. We further evaluate how firm governance mediates the effect of family ownership on environmental and social improvements and how national governance systems influence the response of family holdings to ESG.
Based on a sample of 23,902 firm-year observations drawn from 2002 to 2012 covering 46 countries and 3,893 firms, our findings show that both closely held equity and family ownership are negatively associated with ESG performance. When we control for governance, closely held equity is no longer associated with environmental and social rankings, but family ownership retains a significant negative association. These results are strong and consistent across liberal market economies (LME), whereas coordinated market economies (CME) exhibit generally weaker results and considerable diversity. Japan stands out as different from the other countries examined in depth.
Our results are consistent with agency relationships driving decisions concerning ESG commitment in LMEs. They also emphasize the role of institutional differences given the weak and variable association between ownership and ESG in CMEs. We show that families may be able to influence decisions, possibly through participation in management, despite normally effective governance constraints. As the impact of ownership and governance varies across economies and ownership type, this implies that both agency and governance should be evaluated in the context of the economic environment.
Our results offer insights to regulators and policy makers who intend to improve ESG performance. The results suggest that encouraging diversified ownership is particularly important in LMEs, that improvements in governance may benefit social and environmental performance where equity is closely held by institutions, but that governance may be less effective in the presence of family ownership.
- corporate governance
- corporate social responsibility
- family firms
- closely held equity