Institutional shareholders and corporate social responsibility

Tao Chen; Hui Dong; Chen Lin

doi:10.1016/j.jfineco.2019.06.007

Institutional Shareholders and Corporate Social Responsibility

Tao Chen, Hui Dong and Chen Lin

2020 · Published in Journal of Financial Economics 135(2): 483–504 · DOI 10.1016/j.jfineco.2019.06.007

PDF of Institutional Shareholders and Corporate Social Responsibility (Accepted manuscript, DR-NTU repository)

In one sentence

Institutional shareholders improve the social and environmental performance of the firms they own.

Summary

The paper uses two quasi-natural experiments to identify the effect of institutional shareholders on corporate social responsibility (CSR). An exogenous increase in institutional ownership from Russell index reconstitutions improves portfolio firms’ CSR performance, and firms receive lower CSR ratings when their shareholders are exogenously distracted. The effect is stronger in CSR categories that are financially material. Institutional shareholders influence CSR through CSR-related shareholder proposals. The results suggest that institutional investors can generate real social impact.

Abstract as published

This study uses two distinct quasi-natural experiments to examine the effect of institutional shareholders on corporate social responsibility (CSR). We first find that an exogenous increase in institutional holding caused by Russell Index reconstitutions improves portfolio firms’ CSR performance. We then find that firms have lower CSR ratings when shareholders are distracted due to exogenous shocks. Moreover, the effect of institutional ownership is stronger in CSR categories that are financially material. Furthermore, we show that institutional shareholders influence CSR through CSR-related proposals. Overall, our results suggest that institutional shareholders can generate real social impact.

Citation

Tao Chen, Hui Dong, Chen Lin (2020). Institutional shareholders and corporate social responsibility. Journal of Financial Economics, 135(2), 483–504. https://doi.org/10.1016/j.jfineco.2019.06.007

BibTeX

@article{chen2020institutional,
  title = {{Institutional shareholders and corporate social responsibility}},
  author = {Tao Chen and Hui Dong and Chen Lin},
  journal = {Journal of Financial Economics},
  year = {2020},
  volume = {135},
  number = {2},
  pages = {483--504},
  doi = {10.1016/j.jfineco.2019.06.007}
}