When State Meets Market: Partial Privatization, Institutional Pressures, and ESG Performance

Ownership structure is usually treated as a background control variable in ESG research rather than as a governance mechanism in its own right. This study examines whether that treatment overlooks something important, focusing on partial privatization — the partial divestment of state shares in listed firms — as a hybrid ownership form that combines state and private logics. Using 28,796 firm-year observations from Chinese listed firms over 2009–2022, we find that partial privatization is positively associated with ESG performance, and that this association is stronger for firms in more developed regions and in more competitive product markets. We further show that the ESG gains linked to partial privatization carry through to higher future firm value. The results hold across a battery of endogeneity tests, including lagged models, firm fixed effects, propensity score matching, a difference-in-differences design around privatization events, and Oster’s (2019) sensitivity analysis. Rather than confirming a uniform ownership effect, the findings indicate that partial privatization improves ESG performance conditionally: institutional development and market discipline are what activate the ESG benefits of hybrid ownership. Overall, our findings offer important implications for policymakers, investors, and regulators seeking to align ownership reforms with sustainable development objectives in emerging economies.