Abstract
This study examines the role of foreign institutional ownership in corporate social responsibility (CSR). Using the Shanghai-Hong Kong Stock Connect as a quasi-natural experiment, our difference-in-differences estimation shows that foreign institutional ownership drives firms’ CSR corporate social responsibility. Further, the positive effect of foreign institutional ownership on CSR is motivated by foreign institutional investors shifting the stakeholders’ logics about social responsibility, not by profit maximization. We also provide evidence that this effect of foreign institutional ownership on CSR is more pronounced among firms with fewer political connections and with non-overconfident CEOs. Overall, our results indicate that foreign institutional investors transmit social norms and shift stakeholders’ logics regarding social responsibility and, in turn, propel firms to improve CSR to satisfy their stakeholders’ expectations.
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Notes
The Coordinated Portfolio Investment Survey (CPIS) is led by the IMF and provides detailed data on the holdings of portfolio investment securities for different economies. See details at https://data.imf.org/
For instance, Hong and Kacperczyk (2009) find that norm-constrained institutions are less likely to hold stocks of companies involved in producing alcohol and tobacco or in gaming. Nofsinger et al. (2019) show that institutional investor portfolios tend to avoid stocks with CSR concerns. Starks et al. (2017) find that firms with better environmental, social, and governance (ESG) profiles tend to attract investors with longer investment horizons.
When using the RKS scores, we exclude the governance dimension because governance itself helps to protect shareholders’ value, which is different from the environmental and social dimensions.
In untabulated tests, we conduct the PSM-DID regressions as in Table 8 with the CSR index (N_CSR) as the dependent variable. The results are consistent.
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Acknowlegdements
We thank Assaad El Akremi (the editor), four referees, seminar participants at Central South University, Huazhong University of Science and Technology for helpful suggestions.
Funding
We also gratefully acknowledge the financial support from the National Natural Science Foundation of China (grant no. 72302234, 72104204; 71991473), the Major Project of National Social Science Foundation of China (grant no. 21ZDA010; 22VRC145), the PRC Ministry of Education Youth Project for Humanities and Social Science Research (grant no. 20YJC790051), and the Guanghua Talent Project of Southwestern University of Finance and Economics. All authors contribute equally to this paper. All errors are our own.
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Appendix A
Appendix A
Variable | Definition |
---|---|
Corporate social responsibility | |
CSR_rate | The rating score for corporate social responsibility reported by RKS Global. The maximum score is 100 points |
N_CSR | The sum of 12 categories of CSR engagement reported by the CSMAR database. The 12 categories cover the evaluation of the firm-level quality of annual social responsibility reports, environmental reports, sustainability reports, and corporate citizenship reports. The highest value is 12, and the lowest value is 1 |
Control Variables | |
Size | The natural logarithm of the book value of total assets |
Leverage | Total debt divided by total assets |
Tobin’s Q | Total assets plus the market value of equity minus book value of equity divided by total assets |
ROA | Return on asset |
Cash | Cash and short-term investments divided by total assets |
BM | The market value of equity divided by the book value of equity |
Board | Number of directors on the board |
InD | Number of independent directors |
CEO_duality | The dummy variable equals one if the CEO is also the chairman and zero otherwise |
Political dependence | |
SO_share | The ratio of state shareholdings to total shares outstanding |
CEO_CPCC | The dummy variable equals one when the CEO was a member of the NPC or CPPCC and zero otherwise |
CEO_GO | The dummy variable equals one when the CEO is or has been an officer of the central or regional governments and zero otherwise |
CEO characteristics | |
Overconfidence | The dummy variable equals one if the firm has at least one instance in the sample period where the actual level of profitability is lower than the predicted level of profitability and zero otherwise |
Existing foreign institutional ownership | |
AH_dual | The dummy variable equals one when the firm is cross-listed in both A- and H-share markets and zero otherwise |
EFD | Capital expenditure divided by net fixed assets |
Future performance | |
ROE | Return on equity |
Profit_op | The ratio of operating profit to total assets |
Net_profit | The ratio of net profit to total assets |
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Cheng, X., Jiang, X., Kong, D. et al. Shifting Stakeholders Logics: Foreign Institutional Ownership and Corporate Social Responsibility. J Bus Ethics (2024). https://doi.org/10.1007/s10551-023-05587-7
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DOI: https://doi.org/10.1007/s10551-023-05587-7