Do institutional investors encourage firm to social disclosure? The stakeholder salience perspective☆

This study investigates how organizations manage their business relationships for social impact, emphasizing the cooperation between a company and its shareholders. It views the presence of environmental, social and governance (ESG) disclosure as a response to stakeholder expectations. Drawing upon stakeholder salience and prospect theories, the paper hypothesizes that disclosure of social component of ESG is not in the prime interest of institutional investors. We test these assumptions using a sample of 2,480 firm-year observations from 529 companies listed on the Warsaw Stock Exchange in the period 2015–2019. The findings indicate that there is a negative association between institutional ownership and disclosure of the social performance, both in general and particularly so in the case of ownership by mutual funds or corporate pension funds. The study contributes to the existing literature by indicating the importance of stakeholder salience and prospect theories for understanding the institutional investor role in ESG disclosure.