The Influence of Firm Size and Institutional Environment on ESG Disclosure - Evidence from Listed Companies in China

Environmental, social and governance (ESG) engagement of firms has drawn considerable interest from policymakers and investors. This paper aims to investigate the impact of firm size and institutional environment on the ESG disclosure among listed companies in China. Form the years 2011 to 2021, this study examined a dataset for 11316 firm-year observations of A-share public firms in China. Multiple regression analysis is used to test the research hypotheses. Although according to the Hausman test results (p-value of. 7961), the random effect model is more suitable for this study, the regression results of the three models (ordinary least squares regression, random effect, fixed effect) are relatively consistent. Our findings demonstrate the larger the firm size, the higher the level of ESG disclosure. In addition, our empirical evidences show that the firms have a greater level of ESG disclosure in a better institutional environment. Importantly, our empirical evidences illustrate institutional environment has a moderating effect, strengthening the relationship between firm size and ESG disclosure. This study suggests that a favourable institutional environment should be created to encourage large companies to play the role of industry demonstration and normative effect to improve the level of ESG disclosure. Such evidence can also be used for reference in other emerging markets. Future research could explore the impact of firm profitability, property rights nature, and industry characteristics on ESG practices in different institutional Settings.


Introduction
Businesses need to be recognized by various stakeholders in society in order to achieve sustainable development (Eccles et al., 2014;Cho et al., 2019;Drempetic et al., 2019;Wu et al., 2020;Wu & Memon, 2022). In 2000, the UN established the UN Global Compact. larger companies are more likely to use formal communication channels to link the results of their social efforts to interested parties (Cowen et al., 1987).
From the perspective of enterprises, (Liu & Anbumozhi, 2009) identifies that the determinants of environmental information disclosure affecting enterprises are closely related to government pressure and the size of enterprises, and suggests that Chinese enterprises should raise their awareness of environmental disclosure. Inadequate information regarding material environmental areas could result in substantial political expenses and issues at the local or national level (Iatridis, 2013). This would be especially apparent in the case of large organizations, as their scale would draw political and regulatory scrutiny and push managers to give higher quality sustainability disclosures.
A company's CSR disclosure can be understood as voluntary behavior due to the normative influence of society (Campbell, 2007;Bin-feng, 2022). Based on neo-institutional theory, this voluntary behavior can be attributed to institutional influence ( Gomez, 2016). Many researchers have looked into the correlation between CSR disclosure and institutional theory and environmental factors in different nations (Finegold et al., 2010;Ioannou & Serafeim, 2012). Unfortunately, most of these studies only account for the developed world (Finegold et al., 2010). (Campbell, 2007) contends that institutional differences between countries will influence corporate philanthropy decisions. The government will use positive incentives, such as tax exemption policies , to encourage businesses to actively participate in charitable activities within a strong and well-functioning regulatory framework (Ioannou & Serafeim, 2012). When there is reliable and efficient industry supervision, especially when the government supports industry self-government, enterprises are more likely to take part in social welfare activities. When non-profits, the media, schools, labor unions, and other organizations share common expectations and concerns about corporate social responsibility, the level of corporate social responsibility rises (Liao et al., 2018).

Theories and Hypothesis Development Firm Size and ESG Disclosure
Numerous theoretical frameworks have been applied to the study of ESG. Consistent with legitimacy theory , several scholars have claimed that ESG activity is driven by the needs of various stakeholders and is rewarded with legitimacy (Amato & Falivena, 2019). Larger corporations have more shareholders, including some who are reputable and invested in the company's social activities. These shareholders are more inclined to use information disclosure to share the results of the company's social activities with their peers (Lu & Abeysekera, 2014). Consequently, they are in a better position financially to put resources toward CSR initiatives and other discretionary projects in order to better manage their relationships with stakeholders and, by extension, establish their legitimacy and credibility (Amato & Falivena, 2019).
According to (Waddock & Graves, 1997), Larger firms are associated with greater resource slack, which has been found to have a significant impact on their ESG participation . Large corporations typically have greater financial resources than smaller ones (Amato & Falivena, 2019). Consequently, they are more ready to engage in sustainable practices (Abdi et al., 2022). Drempetic et al (2019) used structural equation model to study the impact of company size on sustainability assessment, and found that larger companies usually have ESG data disclosure resources. Moreover, Hasan & Habib (2017) found in their research on the relationship between corporate life cycle and corporate social responsibility that companies in the mature stage invest more in fulfilling social responsibility than companies in other life cycle stages because they have more abundant resources and competitive advantages. (Gallo &Christensen, 2011) also believed that large companies have more slack resources to invest in the construction of the sustainability management system and have a more formal reporting structure than small companies by adopting sustainability management tools (Drempetic et al., 2019). For example, large companies usually have self-monitoring systems that are very well made and can look at and analyze information other than financial information . However, due to resource constraints, small businesses tend to use more informal communication in ESG activities (Drempetic et al., 2019).
As previously stated, the company seeks legitimate profits by meeting societal expectations. Large companies with a good reputation, on the other hand, appear to be more concerned with their image among shareholders and the general public. This demonstrates that large corporations face a higher legitimacy risk, and they will face increased pressure from the public and non-governmental organizations. On the other hand, because larger companies have idle resources that small companies lack. Therefore, they are more able to invest in ESG activities.

H1:
Firm size is positively associated with firm ESG disclosure.

Institutional environment and ESG disclosure
The normative requirements of the institutional environment demonstrate that enterprises follow the law. Meeting the public's expectations and requirements for social responsibility is an effective way for businesses to comply with moral constraints and obtain critical resources (Suchman, 1995;Campbell, 2007). Listed enterprises need to seek stability and development in the constantly improving and changing institutional environment. Institutional environmental factors, as a latent factor, have a profound and significant influence on the level of social responsibility assumed by listed enterprises (Gao-Zeller et al., 2019).
According to the institutional theory, the value of a company's existence is contingent on its ability to establish social legitimacy (Schaltegger & Hörisch, 2017). Large companies also benefit from giving more information about the environment, such as getting praise from the government and the public . The demand for capital in the currency and stock markets, or the large scale and high market reputation (Lu & Abeysekera, 2014), will prompt companies to report high-quality environmental information disclosure to reduce information asymmetry and capital costs (Gregory, 2022).
There may be a correlation between the amount of pressure from government, public opinion, and industry self-regulatory associations on businesses to engage in ESG activities. The impact of various forms of institutional pressure must be investigated. Standards for corporate behavior can be shaped by coercive pressure stemming from the influence exerted by those in authority ( Gomez, 2016), such as regulation by government agencies, which can encourage firms to adopt or reinforce certain behaviors (Hu et al., 2022). ESG disclosure is also affected by other socio-economic factors, such as product market competition, moral values and local culture.
The main characteristics of China's institutional environment during the period of transformation and development are the high level of government intervention in the economy, the imperfect legal framework, and the immature factor market . When an enterprise is located in a rapidly marketizing region, its economic operation infrastructure will be more complete (Zhao et al., 2006). The more detailed the information disclosed, the more expectations and pressures the enterprise will face from its partners (Zhang et al., 2020). Additionally, areas that have made significant strides toward marketization tend to be more receptive to government involvement and to enjoy a more competitive market with fewer interventions from the state. That's why businesses in those areas are more likely to release useful CSR data in an effort to boost profits and public standing.
H2: The firms have a greater level of ESG disclosure in a better institutional environment.

Impact of the institutional environment on the relationship between firm size and ESG disclosure
The present study explores the moderating effect of institution environment on the relationship between firm size and ESG activities. The examination of institution environment as a potential moderator merits investigation as prior empirical studies in general assume that the relationship between firm size and CSR activities is monotonic and does not vary with institution environment (Udayasankar, 2008). even though theoretical suggestions are made that ESG activities may vary over institution environment (Li et al., 2017;Galletta et al., 2022). Given that they are all connected to corporate performance, this theoretical conflict has raised the possibility of conflicts between corporate size and ESG initiatives (Chyuan et al., 2021;Handayati et al., 2022).
According to institutional theory, an institution is the common system of normative and illustrative guidelines that emerge from an environment with regulatory mechanisms that generate one-of-a-kind actors and action procedures (Scott, 2008). Through various mechanisms, the institutional environment exerts pressure on enterprises, driving them to adopt socially responsible behaviors, thus constraining their norms of behavior and making their behaviors meet social expectations (Schaltegger & Hörisch, 2017). When a business successfully adapts to institutional pressure and follows the rules, it gains social legitimacy and, in turn, access to the external resources it needs to thrive and expand (Hasan & Habib, 2017). Thus, the firm needs to accommodate institutional pressure in order to maintain a steady and productive business environment.
Many aspects of organizational structure and behavior are governed by norms that are either unspoken or explicitly stated within an institution. Members of that field of institutions must meet these standards (Liu et al., 2022). Such as all governments advocate the adoption of the enterprise sustainable development model, which is in line with the internationally recognized sustainable development goals (SDGs) (Drempetic et al., 2019). Due to the longterm nature of sustainable development projects, they are more likely to be taken up by large organizations with well-defined strategic objectives for monitoring their operations (Abdi et al., 2022).
According to the new institutional theory, the survival of large corporations is dependent on whether they are accepted by society (Drempetic et al., 2019). Large companies usually have self-monitoring systems that are very well made and can look at and analyze information other than financial information . Why do large companies use their own resources to provide information, or even actively disclose ESG reports that exceed regulatory requirements? (Schaltegger & Hörisch, 2017) described two types of demonstrations: interest orientation and organizational legitimacy. The former can be defined as: providing corporate social responsibility. Information is regarded as an intangible asset and is a strategic investment to promote corporate reputation. However, good ESG reputation not only contributes to better financial performance, but also can prevent the risk of negative news and even escape punishment in some aspects (Drempetic et al., 2019). However, an online survey conducted by (Schaltegger & Hörisch, 2017) revealed that companies' ESG disclosures are motivated more by "seeking legitimacy" than by financial benefit.
According to (Bin-feng, 2022), CSR performance is closely linked to the political and cultural system of the region, and that a well-informed environment induces a firm's CSR disclosures. In addition, areas that have experienced rapid marketization tend to be more liberal, with increased competition in the marketplace and reduced government interference. As a result, large businesses operating in these areas are more likely to reveal high-quality social responsibility information to boost performance and secure a positive reputation in order to achieve sustainable development. H3: Institutional environment strengthens the relationship between firm size and ESG disclosure.

Data Collection and Sampling Studies
This paper takes China's A-share listed companies from 2011 to 2021 as research samples. The samples are screened and processed in the following order :(1) ST and *ST samples are excluded; (2) Eliminate the samples with missing data; (3) For continuous variables, 1% and 99% tail reduction are carried out. Finally, the unbalanced panel data containing 11316 sample observations is obtained. Data for various variables will be collected from various databases in this study. This study chose Bloomberg ESG evaluation to measure enterprise ESG disclosure. The institutional environment is measured by the total marketization index constructed in China's Provincial Marketization Index Report (Wang et al., 2021). The data for the remaining variables will be collected from the China Stock Market and Accounting Research (CSMAR) database. Based on this, the data analysis software STATA.17 will be used for data management.

Measurement Dependent Variable
In this study, enterprise ESG disclosure (ESG) is the main predictive variable. ESG disclosure scores are used to measure a company's ESG performance. This study chose Bloomberg ESG evaluation to measure enterprise ESG disclosure, primarily because Bloomberg's rating of enterprise ESG performance is deemed the most suitable for empirical research, compared to other rating databases (Gholami et al., 2022). The measurement utilized by Bloomberg is comprised of 120 indicators, including various environmental, social, and governance performance factors (Gholami et al., 2022). This rating has been used in many academic papers (Wang and Sarkis, 2017;Gholami et al., 2022). This research data includes the ESG data of 1345 listed companies in Shanghai and Shenzhen Stock Exchanges from 2011 to 2021. Scores on environmental, social, and governance factors are provided on a scale from 0 to 100 in the Bloomberg ESG database.

Main Variable
There are two factors included in main models of this study: firm size and institutional environment. According to previous studies (Chen and Bouvain, 2009;Zaiane and Ellouze, 2022), Logarithmic form of total employees is used to describe firm's size. This is also in accordance with the enterprise-scale judgment standard of the Company Law of the People's Republic of China. The institutional environment is measured by the total marketization index constructed in China's Provincial Marketization Index Report (Wang et al., 2021). Based on 23 basic indicators, the index reflects the progress of marketization in different regions from five specific dimensions: (1) the relationship between the government and the market, (2) the development of non-state-owned economy, (3) the development of product markets, (4) the development of factor markets, and (5) the development of market intermediaries and the environment of the rule of law. These five "aspect indexes" constitute a total index, reflecting the overall rating and ranking of the relative degree of marketization.

Control Variables
Following prior studies (Li et al., 2017;Zheng and Ren, 2019;Mohammad and Wasiuzzaman, 2021), This paper adopts a variety of control factors to decrease the likelihood of omitted variables on ESG disclosure and improve study comparability. Corporate characteristics is widely used to assess the impact of ESG disclosure (Dupire and M'Zali, 2018), so we control Corporate financial performance ( ), Firm age ( ), State-owned enterprises ( ), etc. Corporate governance is an important factor affecting ESG participation (Voinea et al., 2022), so we aslo control CEO duality ( ), Independent director ( ), Management shareholding ( ℎ ), etc. The definitions of variables are shown in Table 1.  The company is audited by the four major companies (PricewaterhouseCoopers, Deloitte, KPMG and Ernst&Young) as 1, otherwise it is 0. Management ownership percentage

Mshare
Number of management shares/Total number of shares of the company , = 0 + 1 , + 2 , + 3 , + 4 , + 5 ℎ , + 6 . + 7 , + 8 ℎ , + 9 , + 10 , + 11 4 , + 12 ℎ , + , (2) Furthermore, to investigate whether the impacts of firm size on ESG disclosure are stronger or weaker in areas with different levels of institutional environment, the interaction term Mkt * Size are included in model (3): , = 0 + 1 , + 2 , + 3 , * , + 3 , + 4 , + 5 ℎ , + 6 . + 7 , + 8 ℎ , + 9 , + 10 , + 11 4 , + 12 ℎ , + ∑ + + , (3) Table2 reports the descriptive statistics of the key variables in the main regression analyses. It shows that the average of ESG disclosure is 28.331, and the maximum and the minimum is 9.908 and 68.917 respectively. This shows that there are significant differences in ESG disclosure levels among Chinese listed companies. The mean of Mkt is 9.385, and The winsorized maximum and the minimum value is still different. That suggests that our sample operate in a strong institutional environment. Firm size is defined as logarithmic form of total employees. It shows that the maximum value of SIZE is 11.181, and the minimum is 4.159. With a leverage ratio of 47.9%, the average sample company is highly leveraged. The average ROA of 4.9% indicates a level of profitability that is moderate.

Pairwise Correlation Analysis
The results of our examination of the correlation between the variables involved in regression are presented in Table 2. It shows that the ESG disclosure is significantly positively correlated with firm size, institutional environment, leverage, ROA, cashflow, Ratio of independent directors, sales growth, Property right, years of listing, audit institution and management ownership percentage. the majority of independent variables and control variables are significantly correlated at 10% or above, but the correlation coefficients between the major variables are relatively low, indicating that there is no severe multiple correlation in the model.  Notes: ***, **, and * represent the significance levels for 1%, 5%, and 10%, respectively.

Regression Analysis The influence of firm size on ESG disclosure
We first examined how firm size is related to ESG disclosure. The results of mixed regression, random effect, and fixed effect estimation models are listed in Table 3. We use the Bloomberg ESG scores to represent ESG disclosure and the natural logarithm of the total number of employees to represent the size of the company. In the study of how enterprise size affects ESG disclosure, the coefficients in columns (1), (2), and (3) are all positive and significant at the 1% level. This means that the level of ESG disclosure is higher the bigger the enterprise. Consequently, H1 is supported, which is consistent with the study of (Ifada et al., 2021). Larger corporations are typically better known and more concerned with their public image and reputation. Large corporations typically have greater advantages in terms of human and material resources for investing in ESG activities. Therefore, the data supplied to ESG rating agencies are more comprehensive and of higher quality.  Table 1. ***, **, and *, respectively, represent the significance levels for 1%, 5%, and 10%. OLS, RE and FE represent mixed least squares, random effects and fixed effects, respectively  Table 1. ***, **, and *, respectively, represent the significance levels for 1%, 5%, and 10%. OLS, RE and FE represent mixed least squares, random effects and fixed effects, respectively Based on the marketization process of each province and region, this study uses the indicators developed by  to measure the institutional environment. In the analysis of the impact of institutional environment on ESG disclosure, columns (1) ~ (3) of Table 4 report the estimation results of panel ordinary least squares method, among which, column (1) is listed as mixed least squares estimation, and column (2) and (3) consider random effects and fixed effects respectively. The p-value of. 9485 from the Hausman test indicates that the random effect model should be chosen over the fixed effect model in this study. To sum up, the results in column (2) are taken as the basis for analysis. According to the regression results in column (2), institutional environment is significantly positively correlated with ESG disclosure of enterprises, and it is significant at the statistical level of 5%. Hypothesis 2 has been confirmed, indicating that better institutional environment of enterprises will help enterprises to fulfill their social responsibilities and improve the level of ESG disclosure.

The relationship between firm size and ESG disclosure is moderated by institutional environment
The results of the moderating influence of institutional environment on the linkage between firm size and ESG disclosure is presented Table 5. Although according to the Hausman test results (p-value of. 7961), the random effect model is more suitable for this study, the regression results of the three models are relatively consistent: The correlation coefficient between Size and ESG disclosure is high and statistically significant at the 1% level. Moreover, the coefficient of the interactive item Mkt*Size is significantly positive, indicating that the institutional environment has a positively modification effect on the relationship between the enterprise size and the level of ESG disclosure. This verifies hypothesis 3, which states that the stronger the positive role of enterprise size in promoting ESG disclosure, the better the institutional environment.
As for the control variables, the results of each model are consistent. Corporate profitability is significantly positive at the 1% level, indicating that companies with strong profitability have more slack resources and are more willing to disclose ESG activities. The independent director coefficient is significantly positive, indicating that the higher the proportion of independent directors, the higher the level of ESG disclosure. The audit quality coefficient of the company is significantly positive at the level of 1%, indicating that the higher the requirements for audit quality, the higher the level of its ESG disclosure.  Table 1. ***, **, and *, respectively, represent the significance levels for 1%, 5%, and 10%. OLS, RE and FE represent mixed least squares, random effects and fixed effects, respectively

Robustness tests
Firstly, In line with the recommendations of (Amato & Falivena, 2019), we used the natural logarithm of the company's total assets as the representative of the firm size to re estimate model (3) (as shown in Table 6). Whether it is the impact of company size on ESG disclosure or the moderating effect of institutional environment, the estimated coefficients and significance levels are consistent with Table 5. This shows that even if we change the way to measure the independent variable, our research still gets the same conclusion.  Table 1. ***, **, and *, respectively, represent the significance levels for 1%, 5%, and 10%. OLS, RE and FE represent mixed least squares, random effects and fixed effects, respectively. Firm size (SIZE1) is defined as the natural logarithm of the total assets. Mkt * size1 represents the interaction between institutional environment and firm size.
Next, we replace Bloomberg's ESG score with Huazheng ESG rating as the dependent variable, consistent with previous literature . This system calculates the ESG level of Chinese a-share listed companies based on the core connotation and development experience of ESG, as well as the actual situation of the Chinese market, and assigns nine ratings accordingly . In this study, the ESG index was assigned. When the scoring index is AAA, the ESG score is 9 points; When the scoring index is AA, the ESG score is 8; If the rating index is A, the ESG score is 7, and so on. According to the regression results of the three models (as shown in Table 7), our research still gets the same conclusion.  Table 1. ***, **, and *, respectively, represent the significance levels for 1%, 5%, and 10%. OLS, RE and FE represent mixed least squares, random effects and fixed effects, respectively. ESG1 comes from Huazheng ESG rating.
Next, we replace Bloomberg's ESG score with Huazheng ESG rating as the dependent variable, consistent with previous literature . This system calculates the ESG level of Chinese a-share listed companies based on the core connotation and development experience of ESG, as well as the actual situation of the Chinese market, and assigns nine ratings accordingly . In this study, the ESG index was assigned. When the scoring index is AAA, the ESG score is 9 points; When the scoring index is AA, the ESG score is 8; If the rating index is A, the ESG score is 7, and so on. According to the regression results of the three models (as shown in Table 7), our research still gets the same conclusion.  Table 1. ***, **, and *, respectively, represent the significance levels for 1%, 5%, and 10%. OLS, RE and FE represent mixed least squares, random effects and fixed effects, respectively. ESG1 comes from Huazheng ESG rating. Firm size (SIZE1) is defined as the natural logarithm of the total assets. Mkt * size1 represents the interaction between institutional environment and firm size.
As a final test of robustness, the measurement methods of independent and dependent variables are both altered. We used the natural logarithm of the total assets as a measure of firm size and Huazheng ESG rating as a proxy of ESG disclosure. The results from the three different approaches reported in columns (1)-(3) of Table 8 show that the correlation coefficient between enterprise size and ESG disclosure is high, and has statistical significance at the level of 1%. At the same time, the coefficient of the interaction item Mkt*Size1 is significantly positive, indicating that the institutional environment has a positive moderation role on the relationship between enterprise size and ESG disclosure level. According to the results in Table 5, the r-squared value remains above 0.6, indicating that the model is well fitted. However, when the dependent variable was replaced with the Huazheng ESG rating, the model fit was poor (as shown in Table 7/8), despite the fact that the correlation coefficient and significance level were consistent with previous research. After comparing data from the two rating agencies, we find that Bloomberg's ESG assessment of companies is the most suitable for research. consistent with previous literatures (McBrayer, 2018;Chen & Xie, 2022;Gholami et al., 2022).

Discussion and Conclusion
Previous studies mainly discussed ESG disclosure from the personal attributes of managers and the characteristics of the board of directors. This study investigates the impact of firm size (typical characteristics at the enterprise level) on ESG disclosure, as well as the moderator of institutional environment in relation to enterprise size and ESG disclosure. Our research shows that the correlation coefficient between Size and ESG disclosure is high and statistically significant at the 1% level. Moreover, the institutional environment has a positively modification effect on the relationship between firm size and the level of ESG disclosure. The empirical findings offer significant insights into the determinants of ESG disclosure in China.
Our primary research findings indicate that, as the size of businesses continues to expand, they pay increasing attention to their mission and social responsibilities and strive to build and complete a corporate social responsibility system in order to shape a positive corporate image. Large companies are willing to invest more resources in ESG activities and assign special personnel to take charge of the overall planning and classified archiving of ESG activity information. Therefore, the ESG disclosure provided by large companies to rating agencies is more standardized and detailed. The larger the company is, the greater its influence is. It often drives other companies to fulfill their social responsibilities.
Enterprise ESG practices are deeply rooted in cultural norms and social practices. Therefore, the differences in institutional environment will affect how enterprises participate in ESG activities, thus affecting the disclosure of ESG practices by enterprises. Based on the background of the transition economy, we believe that the institutional environment moderates the relationship between enterprise size and ESG disclosure. This study contributed to the literature on corporate social responsibility in the transition economy by expanding our understanding of enterprise ESG practice in the context of the transition economy through an examination of the impact of the institutional environment. Moreover, the conclusions of this study have special practical significance for China and even other emerging economies to play the role of industry demonstration and normative effect of large enterprises in the process of gradually forming a mature ESG disclosure framework and disclosure system.
Our study is limited because it only discusses how the institutional environment affects firm size and the moderating effect of ESG disclosure, and does not include other features at the firm level. Future research could explore the impact of firm profitability, property rights nature, and industry characteristics on ESG practices in different institutional Settings.