• Energy Research

Because corporate sustainability enhances corporate governance principles, firms are increasing their efforts to provide transparency and public disclosure. These efforts inform the public about the relationship between corporate governance and sustainability. Well-informed shareholders know about this relationship, which is becoming more apparent over time. In this study, we empirically examined the possible bilateral relationships between institutional ownership and a firm’s capital structure. Methodologically, we used an instrumental variable approach and the two-step generalized method of moments. The implications of this study are two-fold. First, we found that a firm’s debt level was low if its institutional ownership level was high. Institutional monitoring may substitute for external debt monitoring, leading firms to employ low leverage. Second, we found that the level of institutional ownership was high if a firm’s debt level was high. This association suggests that institutional investors prefer high-leveraged firms because institutional owners decrease their monitoring costs through debt monitoring. In the long run, sustainable institutional ownership materially impacts the capital structures of firms.

As corporate sustainability continues to improve and enhance the principles of good corporate governance, firms are exerting increasing efforts in terms of transparency and public disclosure. Transparency efforts provide information to the general public on the relationship between corporate governance and improved sustainability. The better informed shareholders are about the connection between corporate governance and sustainability, the more apparent the relationship will become over time. Prior studies assume that blockholders engage in active institutional monitoring by intervening directly in firms’ operations. In contrast, we argue that passive institutional monitoring is a more feasible governance mechanism in the Korean market owing to the market’s unique features (i.e., chaebols and pressure sensitivity). In particular, focusing on the blockholdings of the Korean National Pension Service (KNPS), we study the impact of passive monitoring on firms’ earnings quality, represented by earnings persistence, value relevance, and timeliness. The empirical evidence shows that KNPS blockholdings have a positive and significant impact on corporate earnings quality, indicating that passive blockholder monitoring is a more efficient channel for improving earnings quality in South Korea. Our results may be generalized to other emerging markets in which a few entities with concentrated economic power engender pressure-sensitive corporate landscapes for sustainability.

We conducted an empirical analysis to verify the relationship between companies’ ownership structures and earnings management. Our sample included 480 nonfinancial companies listed on Vietnam’s Ho Chi Minh Stock Exchange and Hanoi Stock Exchange from 2012 to 2017, and our explanatory variables included several ratios, such as the controlling shareholders’ stake, management ownership stake, state-owned stake, and foreign ownership stake, which represent different ownership structures. We examined the effects of these ratios on earnings management. Our results suggested that earnings management has a significant linear relationship with the state-owned and foreign ownership stakes. Our results can enhance the understanding of the role of companies’ sustainable ownership structures in limiting earnings management, and they can contribute to future studies of the relationship between earnings management and corporate social responsibility and sustainability reporting assurance practices that focus on corporate ownership structures.

This study investigates the monitoring effectiveness of the largest institutional blockholder in Korea, the Korean National Pension Service (KNPS), on firms’ engagement in corporate social responsibility (CSR). We use a large, unique sample from Korea, where the financial market is primarily characterized by chaebols. We show that lagged KNPS blockholdings do not significantly influence investee firms’ concurrent CSR indexes. This result indicates that even the largest institutional blockholder in Korea does not actively engage in firms’ CSR initiatives to enhance their long-term performance and prosperity. Overall, our results suggest that institutional investors should more actively serve as an effective corporate governance mechanism in emerging Asian markets, where companies aim to be profitable and long-term corporate governance is very important.