Research seminar “Empirical Researches of Corporate Finance”

ABSTRACT: Given the recent rise of ESG investing, we explore which ESG characteristics are the most important to institutional investors in the banking sector. Using a dataset of 780 public banks from 31 European countries, Canada, and the USA during the period of 2004-2019, we study what is the relationship between institutional ownership, shareholder returns, and ESG. Our findings show that institutional investors prefer to invest in banks with already ‘good’ corporate governance, but mainly in common law countries. We could not prove a link between realized shareholder returns and institutional ownership, which contradicts the idea of returns being the primary objective of investing. The evidence on preferences of investors regarding other ESG metrics and their influence on returns is inconclusive and institutional investors seem to dislike banks with better ESG ratings and the existence of CSR committee. Consistent with the previous evidence, we find that independent institutional ownership has a positive impact on boardroom independence.