Sustainability reporting, dedicated and transient institutional ownership, and financial performance

Previous studies on the association between sustainability reporting and the ownership of institutional investors yield inconsistent results. Thus, this thesis examines if the
inconsistencies are due to (1) different types of institutional investors, where different
preferences to firms‘ sustainability engagement are expected to be observed from dedicated and transient institutional investors, and (2) the moderating effect of financial performance, where it is believed that the relationship between sustainability reporting and institutional ownership is only significant when a firm‘s financial performance is high.
Using Malaysian setting, a total of 285 firms listed on Bursa Malaysia in the year 2010 and 2011 are selected for this study, which utilizes a one-year lagged data for
sustainability reporting and contemporaneous data for institutional ownership. Sustainability reporting is measured by the extent and quality of corporate social
disclosures in the annual reports, institutional ownership by the percentage of ordinary shares owned by institutional investors and the return of assets is the proxy for financial performance. The results reveal that sustainability reporting shows positive impact on ownership of dedicated institutions but no impact on the share ownership of transient institutions. Further analysis reveals that sustainability reporting exert positive impact on the ownerships of all three types of institutions defined as dedicated institutions, which are the government-managed pension funds, government-managed unit trust funds and government-managed pilgrimage funds, but no impact on the ownerships of all three types of institutions classified as transient, which are the banks, privatemanaged mutual funds and insurance companies. The results also reveal that dedicated institutions prefer to invest in firms with good sustainability engagement, but poor financial performance, thus they may gain benefit from shareholder activism. Meanwhile, transient institutions only prefer firms with good financial performance, regardless of their sustainability engagement.