Finance Research Letters 79 (2025) 107263

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Finance Research Letters

journal homepage: www.elsevier.com/locate/frl

Do green investors empower companies to develop sustainably? A

study based on the perspective of innovation investment and
corporate governance levels☆
Hongcui Yu , Jinsong Zhang *
School of Accounting,Harbin University of Commerce, Harbin,Heilongjiang, 150028, China

A R T I C L E I N F O A B S T R A C T

Keywords: The study employs empirical research methods to investigate the relationship between green
Green investors investors and sustainable development of enterprises, drawing on data from A-share listed
Sustainable development companies in Shanghai and Shenzhen, China, from 2012 to 2022. The results reveal that green
Innovation investment
investors significantly promote sustainable development of enterprises. Mechanism analysis
Corporate governance level
Analyst attention
shows that green investors facilitate corporate sustainable development by increasing innovation
Internal control investment and improving governance levels. Moreover, the impact of green investors is notably
strong when enterprises are subject to intense analyst attention and complete internal controls, as
well as in enterprises that are non-state-owned, non-heavy polluting, and located in Eastern
China.

1. Introduction

As industrialization and urbanization progress rapidly, ecological and environmental challenges, both on an international and
domestic scale, have come to the forefront, demanding urgent attention, and people have begun to realize the significance of achieving
a balanced development between economic growth and ecological preservation. In 1992, the United Nations Conference on Envi­
ronment and Development established the fundamental strategy for sustainable development. The World Summit on Sustainable
Development in 2002 proposed three elements of sustainable development. The 18th, 19th, and 20th National Congresses of the CPC
also constantly put forward requirements for ecological civilization construction and sustainable development. The global trend to­
ward embracing sustainable development has become undeniable, with a consensus emerging on prioritizing the coordinated
development of economic activities alongside ecological preservation, which represents an inevitable choice for adapting to and
guiding the new economic normalcy (Jiang et al., 2020).
In 2016, to support and enhance the establishment of ecological civilization, seven ministries and commissions including the
People’s Bank of China jointly issued the “Guiding Opinions on Establishing a Green Financial System,” emphasizing the establishment
of a sound green financial system and encouraging the securities market to play an active role in supporting green investments. The
report of the 19th National Congress of the Communist Party of China proposed “promoting the development of green finance, and
enhancing the industries pertaining to energy conservation and environmental protection .” The Fifth Plenary Session of the 19th
Central Committee of the Communist Party of China outlined one of the long-term objectives for 2035, emphasizing“the enhancement

☆
Funding: This work was supported by the National Social Science Foundation of China (NSSFC) project [grant number 21BJY189].
* Corresponding author.
E-mail addresses: [email protected] (H. Yu), [email protected] (J. Zhang).

https://doi.org/10.1016/j.frl.2025.107263
Received 28 October 2024; Received in revised form 19 March 2025; Accepted 19 March 2025
Available online 22 March 2025
1544-6123/© 2025 Elsevier Inc. All rights are reserved, including those for text and data mining, AI training, and similar technologies.
H. Yu and J. Zhang Finance Research Letters 79 (2025) 107263

of legal and policy frameworks that safeguard for green development and the advancement of green finance.” In 2022, the China
Banking and Insurance Regulatory Commission issued the “Green Finance Guidelines for the Banking and Insurance Industry,”
emphasizing the promotion of green finance from a strategic perspective and the prevention of environmental, social, and governance
risks. The report of the 20th National Congress of the Communist Party of China highlighted the necessity for “improve the fiscal,
taxation, financial, investment, and pricing policies as well as standardize the systems that support green development.” These series of
green-finance-related policies have significantly contributed to fostering national and regional green development (Li et al., 2024) as
well as the rapid growth of a group of special institutional investors, i.e., green investors.
Green investors mainly aim to invest sustainably; comply with sustainable development strategies; take into account various factors
including economic, social, and environmental aspects comprehensively; and require enterprises to satisfy performance while also
protecting stakeholders’ interests and ultimately obtaining dual economic and social value (Barnea et al., 2005). Enterprises are an
important force in promoting social and economic development and the primary source of natural resource consumption and pollutant
emission. Enterprises must combine sustainable development with their development strategies to be key actors in carrying out green
governance activities (Debbarma and Choi, 2022; Chen and Majeed, 2024). As the concept of sustainable development becomes
normalized, corporate stakeholders are placing greater emphasis on corporate ecological and environmental protection, and requiring
companies to fulfill more environmental and social responsibilities. As the main stakeholders and supervisors of enterprises, the
contribution of green investors to advancing the implementation of eco-friendly practices and fostering sustainable development is a
question worthy of exploration. Hence, this investigation concentrates on assessing the influence of environmentally conscious in­
vestors on the sustainability practices of corporations.
This study potentially offers a few contributions to existing literature. Initially, this paper enriches relevant literature about the role
and effect of green investors. Previous literature mainly investigates how green investors affect enterprises from a micro perspective
and on economic consequences. Green investors can play a governance role and significantly inhibit corporate greenwashing behavior
based on the hypotheses of effective supervision and collusion of interests (Chen, 2023). From the perspective of institutional logic,
green investors promote green innovation in enterprises by reducing management myopia and strengthening regulatory roles (Jiang
et al., 2023). Investors pay a premium for going green via renewable energies (Reboredo et al., 2017). Green investors have a sig­
nificant impact on pollution and reforming corporate capital costs (Peng et al., 2017). The impact of social effects has not been
extensively investigated in the literature, including corporate sustainable development. Additionally, this study contributes to the
enrichment of relevant literature on factors influencing sustainable development. Previous literature mainly analyzed the impact of
sustainable development from the perspectives of green innovation from the manager perspective (Li et al., 2020), ESG risk by quantile
regression approach (Teng et al., 2021), environmental supervision (Danish et al., 2020), and digital transformation on the localization
strategy (ElMassah and Mohieldin, 2020). However, few scholars have discussed the impact on corporate sustainable development in
terms of green investors. In the end, this study investigates the mechanisms by which green investors influence corporate sustainable
development, providing theoretical guidance and practical significance for companies to carry out green practices and improve sus­
tainable development capabilities.

2. Theoretical analysis and research hypothesis

2.1. Green investors and the sustainable development of enterprises

In accordance with stakeholder theory, the interests of the enterprise are not only related to shareholders but also to various
stakeholders, such as employees, customers, suppliers, society, and the environment. Green investors are not only the fund investment
entities but also one of the stakeholders. They seek both economic returns and prioritize the fulfillment of corporate environmental and
social responsibilities. Green investors need to comprehensively take multiple economic, social, and environmental performances into
consideration in making decisions (Sangiorgi and Schopohl, 2021). Therefore, green investors will ask companies to actively practice
the concept of green development and focus on fulfilling their social and environmental responsibilities, which suggests that com­
panies will also pay attention to social and environmental benefits when pursuing profit maximization. The fulfillment of environ­
mental and social responsibilities can be beneficial to the sustainable development capabilities of corporations (Yang and Cao, 2022).
According to active shareholderism, green investors aim at sustainable investment and play an external governance role in en­
terprises, hence improving the effectiveness of the company’s internal controls. They can participate in the daily operations of
companies through various methods, improve the operating conditions of companies, and strengthen the supervision and restraint of
opportunistic behavior of management (Cella, 2020; Velte, 2023). Therefore, green investors are able to prevent management from
performing behaviors harmful to enterprise sustainable development for their interests, as well as promote companies to actively
participate in green actions, environment-related governance (Hong and Kostovetsky, 2012), and improvement in green governance
performance in terms of sustainable development Both green actions and green governance performance are beneficial to improve
corporate operating performance (Jiang et al., 2021), and further promote corporate sustainable development.
According to signaling theory, there is information asymmetry in the market. Companies can decrease information asymmetry by
the means of transmitting signals outward (Karaman et al., 2020). Green investors also have a positive effect on reducing corporate
information asymmetry. When two companies with similar financial indicators are compared, the one with green investors can release
more positive information (Alon and Vidovic, 2015). Green investors can convey the signal that companies actively participate in
green governance to the outside world to guarantee the successful implementation of green activities of companies, prevent possible
administrative penalties resulting from environmental pollution, and obtain recognition from relevant departments (Wang et al.,
2020). Green investors provide additional information to investors and the market by evaluating enterprise environmental and social

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performance. This practice promotes the transparency of corporate environmental and social performance and increases the fairness of
transactions. This highlighted transparency will prompt corporates to focus on environmental and social responsibilities and imple­
ment green strategic decisions. The implementation of such decisions will contribute to shaping a positive social image and reputation
for the enterprise, thereby benefiting their long-term sustainable development.
Based on the above analysis, the research hypothesis is proposed in this study as follows:
H1: Green investors contribute to enhancing the sustainable development of enterprises.

2.2. Analysis of the intermediary mechanism based on innovation investment

Innovation serves as a critical means to improve the competitive advantage of enterprises (Distanont, 2020; Wang et al., 2022a) and
an inexhaustible motive power for corporates to accomplish sustainable growth. According to the Core competitiveness theory,
innovation capabilities are the essence of forming the core competitiveness of an enterprise, capable of effectively promoting the
sustainable development of enterprises (Yuan and Zhang, 2020), and innovation investment is the material prerequisite for innovation
activities (Gazzola et al., 2023). On the one hand, green investors provide funding and resource support for enterprise green devel­
opment and increase enterprise investment in innovation. Therefore, they accelerate the process of innovation and drive enterprises
towards sustainable development. On the other hand, green investors, as external shareholders of enterprises, place greater emphasis
on the long-term value of enterprises (Chi et al., 2023). Green investors exert governance effects as shareholders, urging enterprises to
engage in innovative activities that promote long-term sustainable development. Consequently, enterprises will increase investment in
innovation to facilitate the development of new technologies, products, and services, thus providing new impetus and prospects for the
sustainable development of enterprises. Based on the above analysis, the research hypothesis is proposed in this study as follows:
H2: green investors are capable of fostering the sustainable development of enterprises by raising investment in innovation.

2.3. Analysis of the intermediary mechanism based on corporate governance effectiveness

The involvement of green investors can prompt corporates to strengthen corporate governance and respond to social and envi­
ronmental pressures by, for example, increasing transparency, strengthening shareholder rights protection, and improving board
structure. Drawing upon resource dependence theory, enterprises must collaborate closely with partners who hold critical resources
during their business operations and growth processes. Green investors, as important stakeholders of a company, possess the external
resources that the company needs, substantially enhancing the company’s ability to acquire resources across multiple dimensions such
as the environment, society, and governance. By absorbing and utilizing external resources, enterprises can gain a competitive
advantage (Wang et al., 2022a) and achieve sustained growth (Qiu et al., 2020). Specifically, first of all, institutional investors have
professional and information advantages (Schoenmaker and Schramade, 2019) and more motivation and ability to participate in
corporate governance practices that can strengthen the internal control of the company (Dasgupta et al., 2021). Green investors have
strong capital, information, and professional knowledge in green environmental protection (Zhao et al., 2023). They can use pro­
fessional knowledge to convey green business concepts to enhance corporate green awareness (Wang and Liu, 2024). The promotion of
corporate governance contributes to the feasibility of managers’ decision-making control and further puts more attention on the
development strategy aspect over a longer period (Wang and Zhang, 2023). Second, green investors pose constraints and supervise on
short-sighted behavior of management (Fan et al., 2024) to improve their information disclosure levels (Malik, 2015), thus promoting
the sustainability of shareholding companies. Third, green investors participate in corporate governance as insiders to alleviate agency
problems, discourage the information asymmetry between principals and agents, ease financing constraints (Gao et al., 2022), send
positive signals of enterprises in aspect of the sustainable development to the outside world. Based on the above analysis, the research
hypothesis is proposed in this study as follows:
H3: green investors make a positive contribution to the promotion of the sustainable development of enterprises through improving
corporate governance levels.

2.4. Analysis of the moderating mechanism based on analyst attention

Based on information asymmetry theory, information asymmetry exists between investors and enterprises in the investment
market, and securities analysts, important participants in the capital market, are indispensable information media (Kirk and Markov,
2016), which is beneficial to reduce information asymmetry in the capital market (Liu et al., 2023), improve the quality of information
disclosure for enterprises.(Garcia-Sanchez et al., 2020; Guo et al., 2024), and release more information to investors (Zhang et al.,
2015). Professional analysis and evaluation by analysts can improve can provide green investors with more accurate and compre­
hensive information, beneficial to green investors to obtain a more accurate evaluation of comprehensive performance in aspects of
environmental, social, and corporate governance. It can be said that analyst attention provides positive external conditions for green
investors, thus green investors can further make targeted investment decisions and participate in corporate governance to improve the
sustainable development of enterprises. Based on the above analysis, the research hypothesis is proposed in this study as follows:
H4: analyst attention positively moderates the impact of green investors on corporate sustainability.

2.5. Analysis of the moderating mechanism based on internal control

As an important mechanism of corporate governance, internal control can promote corporate strategy realization and the healthy

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development of enterprises (Tao et al., 2023). First, effective internal control contributes to enhancing the operational management
level and risk prevention capability of enterprises (Luo, 2017). By establishing a comprehensive internal control system, enterprises
can more effectively identify, assess, and manage various risks related to sustainable development, including environmental pollution,
social responsibility issues, and governance deficiencies. This helps to enhance the reputation and sustainability of enterprises in the
eyes of green investors, thereby increasing their willingness to invest in and influence enterprises. Second, good internal control can
improve the standard of corporate information disclosure (Wu and Hua, 2020) and deliver reliable operating information to creditors,
shareholders, and other stakeholders (Li, 2020). As for green investors, they tend to prefer investing in enterprises with more trans­
parent, open, and comprehensive information disclosure, while strengthening internal controls facilitates meeting this demand. In
summary, internal control enhances the investment motivation of green investors by reducing corporate risks and improving the
quality of information disclosure, thereby strengthening the role of green investors in promoting corporate sustainable development.
Therefore, the following hypothesis is proposed:
H5: internal control positively moderates the impact of green investors on corporate sustainability.
In summary, Fig. 1 shows the theoretical framework of this study.

3. Data and empirical model

3.1. Sample selection and data sources

A-share listed companies on China’s Shanghai and Shenzhen stock exchanges are selected as research objects in this study. The
selected sample covers the period from 2012 to 2022. Considering research requirements, the initial samples undergo the following
processing: (1) financial companies are removed, (2) ST and *ST companies are omitted, (3) samples lacking variable observation
values are eliminated, and (4) the primary continuous variables are winsorized by 1 % above and below for the purpose of eliminating
the impact of outliers. Following these procedures, 9042 observation samples are finally obtained. The financial data analyzed in this
study are obtained from the Guotai’an (CSMAR) database, with multiple regression analysis performed by STATA17.0 software.

3.2. Variable definition and description

3.2.1. Explained variable

The sustainable development indicator is the explained variable. Corporate sustainable development could be measured in various
ways, in which the Higgins and Van Horn sustainable growth model is a widely accepted method. Although simple and easy to operate,
the former model disregards the factors of additional stock issuance and is inconsistent with the actual environment. Therefore,
referring to the study findings of Yang et al. (2018) and Xu et al. (2021), the Van Horn sustainable development model is utilized for
measuring corporate sustainable development. The exact calculation formula is tabulated in Table 1. A larger value calculated by the
formula demonstrates that the sustainable development capability of the enterprise is stronger.

3.2.2. Explanatory variable

The explanatory variable is the green investor indicator. Referring to the method used by Wang et al. (2022b), the shareholdings of
green public funds are selected as the measurement. Fund subject information and shareholding details are collected from the Guo­
tai’an database. Selected funds are screened based on keywords. Specifically, if the fund name, investment plans, and investment

Fig. 1. Theoretical framework.

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Table 1
Variable definitions.
Variables Symbols Names Definitions

explained SGR Corporate sustainable Sustainable development of the enterprise = Net sales interest rate * Earnings retention rate * (1 +
variable development equity ratio) / (1/Total asset turnover rate - Net sales interest rate * Earnings retention rate * (1 +
Equity ratio))
explanatory GI Green investor If the company has green investors, it is 1; otherwise, it is 0
variable
Control variables Size Company Size Natural logarithm of total assets
Lev Assets and liabilities Ratio of total liabilities to total assets
Growth Company growth (Operating income this year - Operating income last year) / Operating income last year
Roa Profitability Ratio of net profit to average balance of total assets
Top1 Ownership concentration Shareholding ratio of the largest shareholder
Dual Two jobs in one If the chairman and general manager are the same person, it is 1, otherwise it is 0
Year Year Dummy variable
Ind Industry Dummy variable

projects funds include keywords, such as, “green,” “environmental protection,” “low carbon,” “new energy,” “beautiful China,” and
“ecology,” they will be identified as green investors; otherwise, the funds will be excluded. Sample companies with such fund holdings
are considered green investors in the company. The value of the green investor indicator is set to be 1 if existing green investors;
otherwise, the value is 0.

3.2.3. Control variables

Drawing on the comprehensive research conducted by Wang et al. (2022c), we have incorporated several crucial control variables
into our analysis process: enterprise size (Size); asset-liability ratio (Lev); enterprise growth (Growth); profitability (Roa); ownership
concentration (Top1) and dual-job holding (Dual). This study also controls year-fixed effects (Year) and industry-fixed effects (Ind).
These control variables help to control the impact of company size, financial condition, and governance structure. Through this
meticulous control, we aim to elucidate the genuine correlations among these factors and their underlying impacts.
Table 1 summarizes definitions of above variables.

3.3. Model design

To test hypothesis 1, we construct a baseline regression model 1, where i represents an individual enterprise, t represents the year;
the explained variable SGRi,t and explanatory variable GIi,t are corporate sustainable development and green investors, respectively;
Controlsi,t represents a series of control variables; Indi represents industry effects; Yeart represents time effects; and εi,t represents
random error terms. In model (1), this study mainly observes the sign and significance level of the coefficient α1 before green investors
(GI). α1 is significant and positive, if green investors have the capability to foster corporate sustainable development.
Through the application of the stepwise regression method, we conduct a rigorous validation and analysis of the intermediary effect
based on innovation investment and corporate governance effectiveness. Models (2) and (3) are proposed to verify hypothesis 2 as well
as models (4) and (5) are proposed to verify hypothesis 3 based on model (1). If the coefficientβ1, γ1, δ1, and θ1 are significant and
positive, it can verify the intermediary effect. To verify the moderating effect of analyst attention and internal control, the interaction
terms (GI × ANALYST) and (GI × IC) are introduced to conduct regression on the basis of model (1). The model (6) and (7) are
proposed to verify hypotheses 4 and 5. If the coefficient ω3 and φ3 are significant and positive, then the moderating effect are valid.
The models are proposed as follows:
SGRi,t = a0 + α1 GIi,t + α2 Controlsi,t + Indi + Yeart + ϵi,t (1)

RDi,t = β0 + β1 GIi,t + β2 Controlsi,t + Indi + Yeart + ϵi,t (2)

SGRi,t = γ0 + γ1 GIi,t + γ2 RDi,t + γ3 Controlsi,t + Indi + Yeart + ϵi,t (3)

GOVERNi,t = δ0 + δ1 GIi,t + δ2 Controlsi,t + Indi + Yeart + ϵi,t (4)

SGRi,t = θ0 + θ1 GIi,t + θ2 GOVERNi,t + θ3 Controlsi,t + Indi + Yeart + ϵi,t (5)

SGRi,t = ω0 + ω1 GIi,t + ω2 ANALYSTi,t + ω3 GI × ANALYSTi,t + ω4 Controlsi,t + Indi + Yeart + ϵi,t (6)

SGRi,t = φ0 + φ1 GIi,t + φ2 ICi,t + φ3 GI × ICi,t + φ4 Controlsi,t + Indi + Yeart + ϵi,t (7)

To summarize, Fig. 2 illustrates the conceptual model diagram devised in this study, which aims to facilitate the interpretation of
the empirical analysis results presented subsequently.

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4. Analysis of empirical results

4.1. Descriptive statistics

Table 2 presents the descriptive statistical data for the main variables. Based on these data, we can observe that the maximum value
of corporate sustainable development (SGR) reaches 0.285, while its minimum value is − 0.026. The calculated mean is 0.066, with a
standard deviation of 0.058. The above values indicate that the sustainable development capabilities of enterprises exhibit low levels
and that significant variations exist among different enterprises, indicating considerable growth potential in this aspect. The mean
value of green investors (GI) is 0.535. It is noted that in the selected corporate samples, the proportion of corporations with green
investors reaches 53.5 %. Green investors are becoming important participants in the capital market.

4.2. Correlation analysis

In this study, a Pearson correlation analysis test was conducted on the relevant variables in the constructed model, yielding cor­
relation coefficients as shown in Table 3. The result shows a significant positive correlation between green investors and corporate
sustainable development performance at the 1 % significance level. This provides preliminary evidence for the positive impact of green
investors on corporate sustainability. The correlation coefficients between each pair of variables are mostly below 0.5, indicating the
absence of severe multicollinearity issues and ensuring the accuracy of the study. Additionally, through the variance inflation factor
(VIF) test, the values of variables are all below 2, further confirming the reasonableness of the selected variables and providing a solid
foundation for our research.

4.3. Baseline regression result analysis

Table 4 shows the regression results of the impact of green investors on corporate sustainable development before and after adding
control variables in columns (1) and (2), respectively. The results indicate that irrespective of the incorporation of control variables,
the impact of green investors (GI) on corporate sustainable development (SGR) is significant and positive at the 1 % level. These
regression results demonstrate that green investors can enhance corporate sustainable development, thus supporting hypothesis 1 of
our study. From the perspective of control variables, the results show that the asset-liability ratio (Lev), company growth (Growth),
profitability (Roa), and equity concentration (Top1) are significantly positively correlated with corporate sustainable development at
the 1 % level, showing that debt management capacity, growth potential, asset return rate, and degree of equity concentration
contribute to the sustainable development capabilities of enterprises.

Fig. 2. Conceptual model of this study.

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Table 2
Descriptive statistics of the main variables.
Variables N Mean SD Min Max

SGR 9042 0.066 0.058 − 0.026 0.285

GI 9042 0.535 0.499 0.000 1.000
SIZE 9042 22.486 1.227 20.227 26.245
Lev 9042 0.393 0.181 0.055 0.791
Growth 9042 0.265 0.568 − 0.507 3.486
Roa 9042 0.052 0.044 − 0.071 0.198
Top1 9042 0.338 0.139 0.091 0.721
Dual 9042 0.254 0.435 0.000 1.000

Table 3
Correlation analysis among variables.
Variables SGR GI SIZE Lev Growth Roa Top1 Dual

SGR 1 ​ ​ ​ ​ ​ ​ ​
GI 0.304*** 1 ​ ​ ​ ​ ​ ​
Size 0.177*** 0.293*** 1 ​ ​ ​ ​ ​
Lev 0.083*** 0.074*** 0.574*** 1 ​ ​ ​ ​
Growth 0.005 0.008 − 0.055*** 0.036*** 1 ​ ​ ​
Roa 0.714*** 0.266*** − 0.046*** − 0.364*** − 0.048*** 1 ​ ​
Top1 0.036*** − 0.008 0.135*** 0.083*** 0.008 0.060*** 1 ​
Dual − 0.007 0.003 − 0.161*** − 0.125*** − 0.026** 0.034*** − 0.028*** 1

***, **, *indicate significant at the 1 %, 5 %, and 10 % significance levels, respectively.

Table 4
Baseline regression results.
(1) (2)
SGR SGR

GI 0.0351*** 0.0061***
​ (0.0012) (0.0008)
SIZE ​ − 0.0004
​ ​ (0.0004)
Lev ​ 0.1256***
​ ​ (0.0028)
Growth ​ 0.0021***
​ ​ (0.0007)
Roa ​ 1.1259***
​ ​ (0.0096)
Top1 ​ − 0.0164***
​ ​ (0.0027)
Dual ​ 0.0010
​ ​ (0.0008)
Year Yes Yes
Ind Yes Yes
_cons 0.0467*** − 0.0221**
​ (0.0008) (0.0101)
N 9042 9042
R² 0.0925 0.6599

***, **, *indicate significant at the 1 %, 5 %, and 10 % significance levels,

respectively.

4.4. Robustness check

4.4.1. Replace the explained variable

Referring to the methods used by Zhu et al. (2024), ESG is selected as a substitute variable for the explained variable (SGR). The
China Securities Index ESG rating, which is closer to the Chinese market and has relatively wider coverage, is used to evaluate sus­
tainable development capabilities. Based on companies’ performance in environmental, social, and governance (ESG) aspects,
Huazheng has meticulously categorized them into nine grades, ranging from AAA to CC, C, in descending order. For ease of quanti­
tative analysis and calculation, these grades have been correspondingly assigned numerical values from 9 to 1. The results after
regression analysis, as shown in column (1) of Table 5. Notably, the coefficient for green investors (GI) reaches 0.052 and holds
statistical significance at the 5 % level, passed the robustness test, in line with our earlier test findings.

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Table 5
Endogeneity test and robustness test results.
(1) (2) (3) (4) (5) (6) (7)
ESG SGR SGR2 SGR SGR SGR SGR

GI 0.0520** ​ 0.3330*** 0.0037*** 0.0038*** ​ 0.0060***

​ (0.0221) ​ (0.0685) (0.0008) (0.0008) ​ (0.0008)
GI2 ​ 0.0069*** ​ ​ ​ ​ ​
​ ​ (0.0005) ​ ​ ​ ​ ​
L.GI ​ ​ ​ ​ ​ 0.0105*** ​
​ ​ ​ ​ ​ ​ (0.0012) ​
Controls Yes Yes Yes Yes Yes Yes Yes
Year Yes Yes Yes Yes Yes Yes Yes
Ind Yes Yes Yes Yes Yes Yes Yes
_cons − 1.2929*** 0.0095 − 6.6820*** − 0.0624** − 0.0525*** 0.0103 − 0.0282***
​ (0.2739) (0.0105) (0.9208) (0.0289) (0.0118) (0.0150) (0.0104)
N 9042 9042 9009 9042 9586 8220 9042
R² 0.1429 0.6643 ​ 0.6675 0.6734 0.3319 0.6648

***, **, *indicate significant at the 1 %, 5 %, and 10 % significance levels, respectively.

4.4.2. Replace explanatory variables

Drawing on the methodology employed by Jiang et al. (2021), the number of green investors existing in listed companies is used as
a proxy variable for green investors (GI2). In Table 5, column (2) displays the results of the regression analysis, showing a coefficient of
0.0069 for GI2, which is statistically significant at the 1 % level, corresponding to the previous test conclusions.

4.4.3. Replace test model

We further modify the measurement method for corporate sustainable development in this subsection. Specifically, the dummy
variable SGR2 is set by the median of the enterprise’s sustainable development as the threshold value. A value is taken as 1 if the value
exceeds the median, otherwise 0. The Logit model is used for re-verification. The results after regression analysis, as shown in column
(3) of Table 5, indicate that the coefficient of GI is 0.333, and it is significant at the 1 % level. This result is in accordance with the
preceding test results.

4.4.4. Control high-order fixed effects

The baseline regression model is adjusted to include enterprise individual fixed effects and the regression analysis is conducted
again. As indicated in Column (4) of Table 5, the regression analysis reveals a coefficient of 0.0037 for GI, which is statistically sig­
nificant at the 1 % level and aligns with earlier test findings.

4.5. Endogeneity test

4.5.1. Propensity score matching

Based on the characteristic of whether enterprises have green investors, this study classifies enterprises with green investor
holdings during the sample period as the treatment group, and those without green investors during the sample period as the control
group. In the light of the 1:1 nearest neighbor matching approach, the matched samples are further regressed into model (1). Referring
to Column (5) of Table 5, the regression analysis outcomes exhibit a GI coefficient of 0.0038 which is highly significant at the 1 % level,
echoing the findings from earlier examinations.

4.5.2. Test the hysteresis effect

To eliminate the reverse causality between green investors and corporate sustainable development, we re-conduct the regression
using lagged green investors (L.GI) and control variables. The results after regression analysis are shown in column (6) of Table 5. The
results show that the coefficient of L.GI is 0.0105 and is significant at the 1 % level, consistent with our previous test analysis.

4.5.3. Supplement omitted variables

We include the cash flow liability ratio (Cash), proportion of independent directors (Indep), and total asset turnover rate (Ato) to re-
regress the model (1). As demonstrated in column (7) of Table 5, the regression analysis reveals the coefficient of GI is 0.0060, which is
statistically significant at the 1 % level. This result is in accordance with the preceding test results.

5. Mechanism test

5.1. Intermediary mechanism test

5.1.1. The mechanism of innovation investment

The study adopts the method proposed by Allred et al. (2007), using the natural logarithm of the enterprise’s annual R&D in­
vestment to measure corporate innovation investment. A larger indicator indicates a greater amount of funds allocated by enterprises

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for innovation activities. In column (1) of Table 6, the coefficient of green investors is 0.1813, significant at the 1 % statistical level,
demonstrating that green investors significantly increase enterprise innovation investment. At the same time, the result in column (2)
shows that the coefficient of innovation investment is 0.002 and is significant at the 1 % statistical level. This suggests that innovation
investment can promote the sustainable development of enterprises. The test results show that green investors have the ability to
promote the sustainable development of enterprises by increasing their investment in innovation, thus supporting hypothesis 2.

5.1.2. The mechanism of corporate governance effectiveness

This study conducts principal component analysis on nine indicators from the three dimensions of shareholders, board of directors,
and incentive mechanism. The first primary component serves as a measure of corporate governance level. The larger the indicator, the
higher the corporate governance level. According to the results in column (3) of Table 6, we can clearly see that the coefficient of green
investors is 0.0391, showing a significant correlation at the 1 % statistical level. This data strongly demonstrates the positive role of
green investors in improving corporate governance. At the same time, further observation of the data in column (4), we find that the
coefficient of corporate governance level is 0.0016, also statistically significant at the 1 % level. This undoubtedly reinforces the
assertion that the improvement of corporate governance level can effectively promote the sustainable development of enterprises.
Additionally, the role channel of the corporate governance level is fully verified, thus supporting hypothesis 3 of our study.

5.2. Moderation mechanism test

5.2.1. Moderating effect of analyst attention

We draw upon the methods proposed by Dong et al. (2021) in terms of research methodology to assess analyst attention to en­
terprises. We quantify analyst attention (ANALYST) by calculating the natural logarithm of the number of research reports published
by analysts tracking a specific enterprise within a year, after adding 1 to the count A higher value of this indicator signifies a greater
level of analyst attention on the enterprise, indicating that more analysts are actively researching and tracking the company. The
moderating effect of analyst attention is shown in Table 6. As shown in column (5), the interaction term (GI × ANALYST) between
green investors and analyst attention demonstrates a significant regression coefficient of 0.0046 in its impact on corporate sustainable
development (SGR), which is statistically significant at the 1 % level, which clearly indicates that analyst attention plays a positive
moderating role in enhancing the contribution of green investors to corporate sustainable development, further strengthening the
positive influence of green investors. Thus, hypothesis 4 is verified.

5.2.2. Moderating effect of internal control

The internal control index of listed companies in the DIB database is widely recognized by scholars as an effective indicator for
comprehensively measuring internal controls (IC) in enterprises (Zhou et al., 2023). Following the methodology of these scholars, this
study characterizes the quality of internal controls in enterprises by dividing the internal control index by 100. The magnitude of the IC
index directly reflects the quality of internal controls in enterprises: the higher the index value, the higher the quality of internal
controls. The moderating effect of internal control is shown in Table 6. The results in column (6) show that the regression coefficient of
the interaction term (GI × IC) between green investors and internal control on corporate sustainable development (SGR) is 0.0059 and

Table 6
Mechanism test results.
(1) (2) (3) (4) (5) (6)
RD SGR GOVERN SGR SGR SGR

GI 0.1813*** 0.0058*** 0.0391*** 0.0061*** 0.0054*** 0.0064***

​ (0.0185) (0.0008) (0.0147) (0.0008) (0.0009) (0.0008)
RD ​ 0.0020*** ​ ​ ​ ​
​ ​ (0.0005) ​ ​ ​ ​
GOVERN ​ ​ ​ 0.0016*** ​ ​
​ ​ ​ ​ (0.0006) ​ ​
ANALYST ​ ​ ​ ​ 0.0014*** ​
​ ​ ​ ​ ​ (0.0004) ​
GI×ANALYST ​ ​ ​ ​ 0.0046*** ​
​ ​ ​ ​ ​ (0.0006) ​
IC ​ ​ ​ ​ ​ 0.0039***
​ ​ ​ ​ ​ ​ (0.0005)
GI×IC ​ ​ ​ ​ ​ 0.0059***
​ ​ ​ ​ ​ ​ (0.0010)
Controls Yes Yes Yes Yes Yes Yes
Year Yes Yes Yes Yes Yes Yes
Ind Yes Yes Yes Yes Yes Yes
_cons − 0.8752*** − 0.0203** − 4.5967*** − 0.0148 − 0.0102 − 0.0312***
​ (0.2292) (0.0101) (0.1820) (0.0105) (0.0105) (0.0103)
N 9042 9042 9042 9042 9042 9042
R² 0.6887 0.6606 0.5793 0.6601 0.6625 0.6630

***, **, *indicate significant at the 1 %, 5 %, and 10 % significance levels, respectively.

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H. Yu and J. Zhang Finance Research Letters 79 (2025) 107263

is significant at the 1 % statistical level, indicating that internal control can positively moderate the role of green investors in pro­
moting the sustainable development of enterprises. Thus, hypothesis 5 is verified.

6. Heterogeneity test

6.1. Heterogeneity of enterprise property rights

Chinese enterprises with different property rights exhibit significant differences in green governance concepts. These differences
may affect the role of green investors in promoting corporate sustainability. We have categorized our sample into state-owned en­
terprises (SOE) and non-state-owned enterprises (non-SOE) based on their property rights. The empirical results in columns (1) and (2)
of Table 7 show that the coefficient is significant at the 5 % level in the sample of SOE and the coefficient is significant at the 1 % level
in the non-SOE sample, indicating that compared to SOE, green investors play a more prominent role in promoting the sustainable
development of non-SOE. This phenomenon may be explained by the fact that SOE has various resource advantages and relatively
stable sources of funding, limiting the incentive effect of green investors. In contrast, non-SOE often face more intense market
competition, making the role played by green investors more significant and providing more motivation to engage in activities.

6.2. Heterogeneity of industry

The effect of green investors on corporate sustainable development could be affected by industry differences considering varying
environmental governance pressures and public environmental concerns faced by different industries. The study further subdivides the
samples into heavily polluting and non-heavy polluting enterprises for research. Columns (3) and (4) of Table 7 show that the
regression coefficients of green investors (GI) are significantly positive at 1 % in two sample groups. However, it’s worth noting that
the coefficient is larger in non-heavy polluting enterprises, indicating that compared to heavily polluting enterprises, green investors
play a more crucial role in promoting sustainable development in non-heavily polluting ones. The result may be due to the significant
environmental regulatory pressures faced by heavily polluting enterprises where regulatory compliance operations become a spon­
taneous necessity, leading to a relatively weaker promoting effect of green investors. Non-heavily polluting enterprises face relatively
weaker environmental regulatory pressures, where voluntary environmental practices become a source of competitive advantage,
allowing them to avoid stricter regulatory constraints. Therefore, green investors are more persuasive in convincing enterprises to
engage in green practices to promote sustainable development.

6.3. Heterogeneity of region

Regional differences in government support and regional development levels in China may contribute to variations in the effect of
green investors on corporate sustainable development in different areas. We further investigate the impact based on the regional

Table 7
Heterogeneity analysis.
Heterogeneity of property Heterogeneity of industry Heterogeneity of region
rights

(1) (2) (3) (4) (5) (6) (7)

SOE Non-SOE Heavy polluting Non-heavy polluting Eastern Western Central
enterprises enterprises Region Region Region

GI 0.0030** 0.0068*** 0.0052*** 0.0063*** 0.0069*** 0.0042 0.0022

​ (0.0012) (0.0011) (0.0016) (0.0010) (0.0010) (0.0029) (0.0019)
Size − 0.0044*** 0.0028*** 0.0000 − 0.0003 − 0.0003 − 0.0027* 0.0006
​ (0.0006) (0.0006) (0.0009) (0.0005) (0.0005) (0.0015) (0.0012)
Lev 0.1345*** 0.1173*** 0.1100*** 0.1311*** 0.1288*** 0.1267*** 0.1187***
​ (0.0040) (0.0036) (0.0056) (0.0032) (0.0032) (0.0104) (0.0071)
Growth 0.0009 0.0030*** 0.0033* 0.0017** 0.0015* − 0.0020 0.0067***
​ (0.0009) (0.0010) (0.0019) (0.0007) (0.0008) (0.0025) (0.0015)
Roa 1.3379*** 1.0407*** 1.1623*** 1.1124*** 1.1379*** 1.1168*** 1.0943***
​ (0.0151) (0.0119) (0.0202) (0.0110) (0.0112) (0.0358) (0.0237)
Top1 0.0084** − 0.0253*** − 0.0132** − 0.0165*** − 0.0092*** − 0.0190** − 0.0528***
​ (0.0039) (0.0036) (0.0058) (0.0031) (0.0032) (0.0094) (0.0070)
Dual 0.0015 0.0018* − 0.0024 0.0019** 0.0019** − 0.0097** − 0.0034
​ (0.0018) (0.0010) (0.0017) (0.0010) (0.0009) (0.0043) (0.0023)
Year Yes Yes Yes Yes Yes Yes Yes
Ind Yes Yes Yes Yes Yes Yes Yes
_cons 0.0632*** − 0.0853*** − 0.0546*** − 0.0240** − 0.0106 0.0273 − 0.0430*
​ (0.0143) (0.0141) (0.0201) (0.0114) (0.0129) (0.0386) (0.0234)
N 3102 5940 2246 6796 6516 748 1668
R² 0.7601 0.6330 0.6532 0.6637 0.6742 0.6418 0.6350

***, **, *indicate significant at the 1 %, 5 %, and 10 % significance levels, respectively.

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H. Yu and J. Zhang Finance Research Letters 79 (2025) 107263

classification of companies into eastern, western, and central regions. The results tabulated in columns (5), (6), and (7) of Table 7
reveal that in the sample from the eastern region, the coefficient of green investors (GI) is significantly positive, whereas, in the central
and western regions, the coefficient is not significant, which demonstrates that green investors have a stronger effect on corporate
sustainable development in the eastern region. This could be attributed to relatively comprehensive policy support and industrial
structures, advantages in terms of funding and technology, and higher green investment efficiency in the eastern region of China. The
above advantages lead to a greater allocation of resources to the development of enterprise sustainable capabilities after green in­
vestors hold shares.

7. Conclusions, suggestions, and limitations

7.1. Conclusions

In the context of actively advancing the green development concept and the construction of ecological civilization, this study
conducted an empirical investigation into the influence of green investors on the sustainable development of enterprises. Utilizing data
from A-share listed companies in Shanghai and Shenzhen, China, from 2012 to 2022, we have identified several key findings: (1) Green
investors significantly promote the sustainable development of enterprises, which remains solid after a sequence of endogeneity and
robustness tests, including instrumental variable testing, supplementing omitted variables, replacing key variables, and using lagged
variables. (ii) The results of the mechanism analysis reveal that green investors, as important external stakeholders and social in­
vestment subjects, effectively foster sustainable development by increasing innovation investment and improving governance stan­
dards. (iii) The moderation effect test shows that enhanced analyst attention and more robust internal controls significantly enhance
the impact of green investors on corporate sustainability. (iv) Our analysis of heterogeneity indicates that green investors have a more
positive impact on enterprises those are non-state-owned, non-heavy polluting, and located in the eastern regions.

7.2. Suggestions

After a comprehensive analysis of the mechanism of green investors’ impact on sustainable development, combined with detailed
data analysis, model validation, and rigorous empirical analysis results, the study has drawn a series of important conclusions. Based
on this, we propose the following recommendations aimed at deepening our understanding of the role of green investors and providing
valuable insights and guidance for enterprises when formulating and implementing sustainable development strategies.
First, companies must prioritize recognizing the significant function of green investors in corporate sustainable development. They
should actively introduce green investors, pay attention to the demands of stakeholders like green investors, proactively disclose
environmental information, and effectively serve green investors. By leveraging the supervisory governance capabilities of green
investors, enterprises could improve corporate governance, increase investment in innovation, and promote healthy and sustainable
development.
Second, governments and financial markets should establish a sounder green investment system, cultivate more green investors,
provide a better institutional environment for green investors, guide institutional investors to embrace the investment concept of green
development, stimulate the enthusiasm of green investors to supervise corporate environmental practices and promote social and
economic growth as well as coordinated ecological development.
Third, considering the heterogeneity of enterprises, green investors have differentiated impacts on enterprises’ sustainable
development. Green investors should fully consider the differences in ownerships, industries, and regions of enterprises, as well as
actively explore different development models and management decisions. At the same time, the government also should balance the
resource allocation across regions, improve the efficiency of green investment, and enhance the sustainable development capabilities
of the entire industry.

7.3. Limitations and future prospects

First, the scope of research elements needs to be improved. For green investors, although variables widely used in existing research
are referenced, the selection of variables is still controversial. Therefore, in the future, we will find more comprehensive variables to
measure green investors.
Second, the influence mechanism needs to be improved. This study explores the impact mechanism of green institutional investors
on enterprise sustainable development from the perspective of innovation investment and corporate governance levels. However, the
study did not thoroughly consider the impact of other variables. In the future, it is expected to explore the impact mechanism from
more perspectives.

CRediT authorship contribution statement

Hongcui Yu: Writing – review & editing, Writing – original draft, Methodology, Funding acquisition, Conceptualization. Jinsong
Zhang: Writing – review & editing, Writing – original draft, Methodology, Conceptualization.

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H. Yu and J. Zhang Finance Research Letters 79 (2025) 107263

Data availability

Data will be made available on request.

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