Conventional wisdom suggests that opening capital markets to global investors will naturally lead to improved corporate ESG practices in emerging markets. However, a new study published in the Journal of International Business Studies reveals a more complex reality.

Using China’s Stock Connect programs (Shanghai-Hong Kong and Shenzhen-Hong Kong) as a quasi-natural experiment, the research finds that firms exposed to global investors through stock market liberalization reduced their voluntary disclosure of supplier identities—a key step in tackling environmental grand challenges—by 2.4 percentage points, a statistically and economically significant decline.

Why this counterintuitive outcome?

In weak institutional environments, firms prioritize avoiding short-term financial and reputational risks over long-term ESG gains. Disclosing suppliers can invite immediate scrutiny, while the benefits of transparency remain uncertain.
But there’s hope. The study identifies three institutional factors that can weaken or even reverse this negative effect:

🔹 Regulative: High QFII ownership, where foreign investors face regulatory constraints and are incentivized to use "voice" over "exit", strengthens disclosure.
🔹 Normative: Firms with ISO 14001 certification are better equipped to manage environmental risks and more likely to disclose suppliers.
🔹 Cultural-Cognitive: Chairpersons with overseas experience are more aligned with global norms and more open to investor engagement on ESG.

Implications for policymakers & firms:
Capital market openness alone is not enough. Supportive institutions—through regulation, certification, and leadership—are essential to align global capital with sustainable development goals.

We are proud that MioTech's data, including ISO 14001 certifications and environmental penalty records supported this important research.

Read the full paper:
“Global investors, hidden suppliers: how institutions shape the impact of stock market liberalization programs on corporate responsibility”
JIBS, 2025 | Shipeng Yan, Wei Jiang, Yue Xu
https://lnkd.in/efAkSxjn