How do institutional shareholders manipulate corporate environmental strategy to protect their equity value? A study of the adoption of ISO 14001 by Egyptian firms

Abstract

Theoretical as well as empirical evidence regarding the infl uence of institutional ownership on corporate environmental strategy not only is inconclusive but also refl ects experience from either the Anglo-American context or other developed countries. The underlying assumption of most of this literature is that institutional shareholders are always 'active' or 'passive' in their actions towards corporate environmental strategy. However, this study argues that this relationship might be moderated by various motivations such as legitimizing existence and operations, conforming with industry norms or lessening managerial entrenchment. Econometric analysis, using a sample of Egyptian fi rms, as hypothesized, demonstrated that institutional ownership exerted positive and signifi cant effects on a corporation's tendency to adopt environmental management standards only when fi nancial resources are available and investment opportunities are limited. A possible explanation of this fi nding is that Egyptian institutional investors are more likely to use corporate environmental responsibility to offset their inability to confront managerial discretionary power. An implication of this fi nding is that not only will different types of stakeholder ask for different levels of social and environmental responsibility, but also the same type of stakeholder may ask for different levels of social and environmental responsibility in different contexts.

The mediating effect of financial performance on the relationship between social responsibility and ownership structure

“…Therefore, the net impact of social responsibility on institutional ownership, according to this perspective, is expected to be positive. In other words, firms that invest more in building its social reputation will be able to attract more institutional investors (Wahba, 2010;Wahba and Elsayed, 2014a). Conversely, institutional investors, according to the theory of myopic institutions (Hansen and Hill, 1991), are considered as shortsighted investors who concern only with short-term return, as managers of these institutions are evaluated and compensated on their short-term results (Graves and Waddock, 1994;Cox et al, 2004;Michelson et al, 2004).…”

“…Following previous work (Graves and Waddock 1994;Johnson and Greening 1999;Cox et al 2004;Elsayed 2006;Wahba 2010), controls variables include firm size, firm age, financial leverage, dividend per share, liquidity, capital intensity, and industry heterogeneity.…”

“…This is because short-term performance cycles discourage them from supporting longterm projects as institutional investors mainly prefer near-term earnings (Bushee, 2001;Koh, 2003). In a similar vein, empirical studies that have examined the relationship between social responsibility and institutional investors offer inconclusive evidence (Coffey and Fryxell, 1991;Graves and Waddock, 1994;Cox et al, 2004;Mahoney and Roberts, 2007;Wahba, 2008bWahba, & 2010Saleh et al, 2010).…”

Corporate social responsibility and developing countries

“…-in Central and South America (Guerin, 2007;Adams et al, 2006;Weyzig, 2006;Vives, 2006;Anderson et al, 2005;Haslam, 2004), -in Africa (Buch et al, 2009;Kehbila et al, 2009;Keitumetse, 2009;Mitchell et al, 2009;Wahba, 2009;Edoho, 2008;Short, 2008;Ite, 2007b;Ite, 2007a;Ofori et al, 2007;Rinzin et al, 2007;Alemagi et al, 2006;Dunfee, 2006;Idemudia et al, 2006;Visser, 2005;Ite, 2004), -in Asia (Birkin et al, 2009;Cheung et al, 2009;Naeem et al, 2009;Sobhani et al, 2009;Windell, 2009;Baughn et al, 2007;Guerin, 2007;Frost et al, 2006;Virtanen, 2006;Chapple et al, 2005;Frost et al, 2005;Sahay, 2004;Koolhaas, 2001), in East Europe and Middle East (Ray, 2008;Guerin, 2007;Jamali, 2007;Jamali et al, 2007;Küskü, 2007).…”

Incorporating Technological Innovation and Environmental Strategy: An Integrated View of Cognition and Action

“…Although this research tried to construct a link between individual behavior and organizational action, it didn't explore how contingent factors influenced managers' cognition and correspondent actions. Recently, studies on CEO's capability disclosed that the ambidexterity capability of decision-makers in dealing with ambiguous issues with both positive and negative meanings would decide the scope of action, risks and innovativeness (Plambeck & Weber, 2009, 2010. Corporate environment strategy could be regarded as an ambiguous issue since there are still lots of enterprises that have not incorporated environment strategy as an important foundation for their organizations' sustained competitive advantage.…”