The impact of central environmental inspection on institutional ownership: Evidence from Chinese listed firms

As a major innovation of China's environmental regulatory framework, the central environmental inspection (CEI) policy has a significant effect on ecology and the economy, but research on its effects on institutional investors and listed firms is scarce. This paper uses panel data from China's A-share listed firms to investigate the impact of CEI on institutional investors' ownership in listed firms. We use the staggered difference-in-differences (DID) method and find that this impact is significant and positive. We also find that institutional investors tend to increase their holdings in firms that are positively affected by CEI in terms of ecological responsibility and total factor productivity. After dividing the sample and performing regression analysis, we find that only listed firms belonging to heavily polluting industries and non-state-owned enterprises experience an increase in institutional ownership after CEI. In addition, firms subject to more institutional investor attention receive more investment after CEI. Our results demonstrate that CEI does not cause institutional investors to invest less in listed firms in polluting industries and does not make these firms worse off, which sheds light on the economic impact of CEI.