Ownership by Mutual Funds and Corporate Reporting of Environmental Responsibility: Empirical Evidence from China 2007-2019

After 40 years of economic ascendancy, China's environmental challenges and public awareness of them have swelled substantially. Both concern mutual funds that invest in publicly traded Chinese firms, many of which have shown questionable environmental responsibility. This study investigates whether mutual fund ownership of Chinese corporations influences firms' disclosures of environmental responsibility by empirical methodologies. Annual data for 25,188 firm-year observations of corporations trading as A-shares in Shanghai and Shenzhen from 2007-2019 revealed that ownership by mutual funds, and especially by leading funds, correlates strongly and positively with environmental disclosures. These results imply that mutual funds were activist investors that influenced sampled firms to disclose their environmental responsibility during the period 2007-2019. We also examine environmental reporting and mutual fund stock ownership in relation to security analyst coverage, whether sampled firms are government-owned, and periods before and after the implementation of China's New Environmental Protection Law. Results are heterogeneous with respect to all three considerations. Our findings are significant for regulators, investors, and corporate managers.