Do Institutional Investors Drive Corporate Social Responsibility? International Evidence

Abstract

We examine whether institutional investors affect a firm's commitment to corporate social responsibility (CSR) for a large sample of firms from 41 countries over the period 2004 through 2013. We focus on environmental and social aspects of CSR, while controlling for firms' governance levels. We find that institutional ownership is positively associated with firm-level environmental and social commitments. Further, the "color of money" matters. Domestic institutional investors and non-U.S. foreign investors account for these positive associations, while U.S. institutional investors' holdings are not related to environmental and social scores. Similarly, higher scores are associated with long-term investors such as pension funds but not with hedge funds. Evidence from a quasi-natural experiment shows that institutional ownership causes improvements in environmental scores. Overall, our results suggest that institutional investors, in aggregate, use their ownership stakes to promote good CSR practices around the world.

Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows

“…Evidence in support of this hypothesis would be consistent with prior literature, showing that institutional investors drive firms' environmental and social investments (e.g., Dyck et al. ()) and the importance of institutional investors more broadly (e.g., Gillan and Starks (), Gillan and Starks ()).…”

Sustainability and Convergence: The Future of Corporate Governance Systems?

“…The ownership structure of sustainable companies reflects the typical differences between outsider and insider systems, with a higher percentage of shares owned by big shareholders (often founding families) in insider systems and a more dispersed capital in outsider ones [114]. In both cases, companies should satisfactorily communicate their commitment to sustainability in support of the financial market in the perception of future value creation, despite current expenses in sustainability projects [118,119]. In fact, research confirms a growing interest in sustainability among mainstream investors [120][121][122]; understanding investor priorities is an important responsibility in the board of directors' focusing corporate strategy and behaviors.…”

El Consejero Dominical y el Gobierno Corporativo / Institutional Directors and Corporate Governance

“…Ibrahim et al, 2003;Johnson and Greening, 1999;Webb, 2004;Zahra et al, 1993). These same results are reported by Dyck et al (2015), Fernández Sánchez et al (2011), Johnson andGreening (1999), Neubaum and Zahra (2006) and Yong Oh and Kyun Chang (2011), who show a positive impact of institutional investors on CSR practices, demonstrating the effectiveness of these owners in promoting responsible behaviour.…”

“…As for institutional investors, findings of previous research are not conclusive (e.g. Arora y Dhawadkar, 2011;Dyck et al, 2015;Fernández-Sánchez et al, 2011), showing a positve and negative relationship between these investors and CSR.…”

“…Respecto a los inversores institucionales, los resultados de investigaciones previas no son concluyentes (e.g. Arora y Dhawadkar, 2011;Dyck et al, 2015;Fernández-Sánchez et al, 2011), evidenciando una relación tanto positiva como negativa entre estos inversores y la RSC.…”