Do institutional investors care about material ESG disclosure? Evidence from the SASB standards

Abstract: This paper examines the relationship between institutional ownership and SASB disclosure, by applying a linear probability model with fixed effects to our panel dataset. We find that certain groups of institutional investors demand SASB disclosure, and that their demand is sensitive to the disclosure costs faced by firms, namely information production and proprietary costs. Ownership by hedge funds is negatively associated with SASB disclosure in most regression specifications, while pensions sponsors, family offices and trusts, and insurance companies have a positive association in certain regression specifications. We attribute different demands for SASB disclosure across institution types to different ESG preferences, and discuss various motivations behind them, such as investment horizons, risk management, social norms, and universal ownership. Overall, our results provide evidence of both institutional and economic theories of disclosure, i.e. institutional investors demand SASB disclosure, but they are also sensitive to disclosure costs.