Institutional investors’ representative director and firm ESG performance

Abstract

The operation of the board of directors constitutes a central mechanism of corporate governance. Directors play a critical role in monitoring top management and shaping managerial decisions. Environmental, social, and governance (ESG) performance has emerged as a salient dimension of contemporary strategic orientation, yet the role of institutional investors’ representative directors remains largely underexplored. These representatives, easily replaced by appointing institutions, can increase large shareholders’ control, potentially impairing governance and firm performance. This study investigates whether the presence of institutional representative directors is negatively associated with firm ESG performance. The empirical analysis is based on a panel of 1,722 listed non-financial firms in Taiwan from 2016 to 2024. Using correlation analysis and multiple regression estimation, the results indicate that a higher prevalence of institutional representative directors is associated with a deterioration in overall ESG performance. However, dimension-specific analysis suggests that such firms exhibit relatively stronger performance in the environmental and social dimensions. The adverse effect on overall ESG performance is primarily driven by a significant decline in the governance dimension.