Some institutional investors are exposed to social norms and public scrutiny. Prior research indicates that these norm-constrained institutions engage in negative screening and invest less in firms operating in ‘sin’ industries. We examine whether social norms also motivate these institutions to engage in positive screening—where they invest more in firms with better corporate social responsibility performance—and CSR-related activism—where they promote improvements in the CSR of existing investees. We find that firms with superior CSR performance have greater ownership by norm-constrained institutions, (...) consistent with positive screening, and we use a natural experiment to establish causality. We also find that increases in the shareholdings of norm-constrained institutions are associated with subsequent improvements in CSR, consistent with activism. Further, we rule out an alternative explanation for our results where the positive screening and activism are ‘profit-driven’ rather than driven by social pressure. Thus, our results suggest that the influence of social norms on stock markets is more pervasive than documented in the prior literature. (shrink)

This study examines whether sanctions imposed by the China Securities Regulatory Commission against individual auditors result in greater auditor conservatism. Using a difference-in-differences research design, we find that clients of sanctioned individual auditors have lower discretionary accruals in the post-sanction period than in the pre-sanction period when compared to a matched control group of clients audited by individual auditors who were not sanctioned. Our findings suggest that sanctions imposed by the CSRC on individual auditors can lead to improvements in audit (...) quality by increasing the conservatism of the sanctioned auditors. That is, individual auditors are more likely to resist their clients’ income-increasing accounting manipulations after being sanctioned by the CSRC. (shrink)