In this paper, we employ the unique qualified foreign institutional investors (QFII) scheme in China to investigate whether and how the different religious beliefs in the areas where foreign institutional shareholders from are associated with the corporate social responsibility (CSR) performance of domestic firms. After controlling for other determinants, we find robust evidence that firms with QFII investors from areas with stronger religious beliefs have better CSR performance than those that do not have these beliefs'. This association is more pronounced (...) when a QFII has a shorter holding period, has a relatively large ownership in the firm, or is a more committed investor in China. The above moderating results show that the stock preference may be a channel through which religious QFIIs affect firms’ CSR performance. Our paper contributes to the growing body of literature on CSR and on the effects of investors’ religious beliefs. It also offers useful guidance to listed companies, institutional investors, regulators, and other stakeholders. (shrink)

The influence of corporate social performance on stakeholders is one of the focal issues in corporate social responsibility research. Using data of listed companies in China, this paper examines whether CSR behavior in the form of charitable donations garners a positive reaction from suppliers. Results derived from both level and change model regressions show that superior CSP makes it easier for a firm to obtain trade credit from suppliers, although the effect is significant only in non-state-owned enterprises. The results are (...) robust to various measures of CSP and endogeneity tests. The results support the strategic philanthropy view and apply stakeholder theory in supply chain, that strategic CSR can help firms to attract suppliers and consolidate cooperative relationships with them, which in turn benefits the firms in terms of more trade credit financing from suppliers. This paper also shows that state-owned enterprises and non-SOEs have different CSR intentions and use CSR to achieve strategic goals in different ways. The conclusions drawn from this study provide practical guidance on CSR strategy, suggesting that CSR activities can help a firm in transition economies to enhance its corporate image, establish and consolidate the good relationship with suppliers, and obtain economic benefits or achieve long-term business objectives. (shrink)

This article examines the risk and return profiles of stock indices composed of companies meeting environmental, social and governance screening criteria [such as the Dow Jones Sustainability Indices ] and conventional composite indices of eight Asian countries from 2002 to 2014. The results indicate that there are no significant differences in the returns or risk-adjusted returns between the ESG indices and the composite indices within countries. The results do reveal that the market volatility of the ESG indices is higher than (...) the market volatility of the conventional indices. Market betas of DJSI and ESG equity indices are significantly lower than betas of the composite equity indices. The overall results indicate that the performance of ESG equity indices of many Asian countries is similar to the performance of conventional indices, suggesting that investors can pursue socially responsible investing objectives without a material difference in portfolio performance from conventional investing. (shrink)

While sustainability is largely associated with do-gooders, this article discusses whether and how fraud might also be an issue in sustainability departments. More specifically, transferring the concept of the fraud triangle to sustainability departments I discuss possible pressures/incentives, opportunities, and rationalizations/attitudes for sustainability managers to commit fraud. Based on interviews with sustainability and forensic practitioners, my findings suggest that sustainability managers face mounting pressure and have opportunities to manipulate due to an immature control environment. Whether a presumably morality-driven attitude may (...) prevent them from committing and easily rationalizing fraud remains controversial. Even though cases of fraud happening in sustainability departments are still widely unknown, the interview analysis reveals that sustainability fraud is likely to occur at least to some extent—and presumably remains undetected. The study brings to light the importance of a clear commitment from executives to sustainability to prevent sustainability fraud and demonstrates adverse developments driven by external stakeholders, specifically the bonus relevancy of sustainability index scores. In particular, the study shows a lack of awareness for potential fraud in sustainability departments. (shrink)

>With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporations long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a companys long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension (...) funds trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to socially responsible investing (SRI) and when applied to corporations, it is termed socially responsible corporate conduct (SRCC). We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients, i.e. pension funds, best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic. (shrink)

With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporation's long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a company's long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension (...) funds' trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds' beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to "socially responsible investing" and when applied to corporations, it is termed "socially responsible corporate conduct." We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients', i.e. pension funds', best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies' stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic. (shrink)

Finance is grease to the economy. Therefore, we assume that it may affect corporate social responsibility (CSR) and the sustainability of economic development too. This paper discusses the transmission mechanisms between finance and sustainability. We find that there is no simple one-to-one relationship between financial development and sustainable development but there are various – often indirect – linkages. It appears that most of the literature concentrates on the role of public shareholders when it comes to changing corporate policy and performance (...) in a more sustainable direction. However, this focus neglects the potential impact of the credit channel and private equity on a firm’s non-financial policies and performance. These very powerful mechanisms can govern business policies and practices. Therefore, there appears to be much more scope for finance to promote socially and environmentally desirable activities and to discourage detrimental activities than has been acknowledged in the academic literature so far. (shrink)

With a meta-analysis of 85 studies and 190 experiments, the authors test the relationship between socially responsible investing and financial performance to determine whether including corporate social responsibility and ethical concerns in portfolio management is more profitable than conventional investment policies. The study also analyses the influence of researcher methodologies with respect to several dimensions of SRI on the effects identified. The results indicate that the consideration of corporate social responsibility in stock market portfolios is neither a weakness nor a (...) strength compared with conventional investments; the heterogeneous results in prior studies largely reflect the SRI dimensions under study. (shrink)

An emerging body of literature has highlighted a gap in our understanding of the extent to which the salience attached to human rights is likely to influence the extent to which an individual takes account of Corporate Social Responsibility (CSR) in decision making. The primary aim of this study is to begin to address this gap by understanding how individuals attribute different emphasis on specific aspects of human rights when making decisions to purchase, work, invest or support the community operations (...) for socially responsible organisations. In order to achieve this objective, a survey instrument was administered to professionals in Russia and Bulgaria. Our data indicate that there is a significant correlation between individuals’ sensitivity towards different components of human rights and their perceptions of the importance of CSR in decision making. Specifically, the recognition of political rights was strongly associated with the willingness to purchase, invest, seek employment and support socially responsible firms. Our analysis also outlines significant differences between the Russian and the Bulgarian samples with regard to the manners in which individuals rate the importance of civil, political and economic human rights. (shrink)

An emerging body of literature has highlighted a gap in our understanding of the extent to which the salience attached to human rights is likely to influence the extent to which an individual takes account of Corporate Social Responsibility in decision making. The primary aim of this study is to begin to address this gap by understanding how individuals attribute different emphasis on specific aspects of human rights when making decisions to purchase, work, invest or support the community operations for (...) socially responsible organisations. In order to achieve this objective, a survey instrument was administered to professionals in Russia and Bulgaria. Our data indicate that there is a significant correlation between individuals’ sensitivity towards different components of human rights and their perceptions of the importance of CSR in decision making. Specifically, the recognition of political rights was strongly associated with the willingness to purchase, invest, seek employment and support socially responsible firms. Our analysis also outlines significant differences between the Russian and the Bulgarian samples with regard to the manners in which individuals rate the importance of civil, political and economic human rights. (shrink)

This article presents the results of a study that analysed whether social responsibility had any bearing on the decision making of institutional investors. Being that institutional investors prefer socially aligned organizations, this study explored to what extent the corporate actions and/or social/environmental investments influenced their decisions. Our results suggest that there are specific variables that affect the perceived value of the organization, leading to decisions to not only invest, but whether to hold or sell the shares, and therefore having a (...) consequential impact on the capital market’s valuation. (shrink)

This paper empirically examines the financial performance of a UK unit trust that was initially “conventional” and later adopted socially responsible investment (SRI) principles (ethical investment principles). Comparison is made with three similar conventional funds whose investment objectives remained unchanged. Analysis techniques employed in previous studies find similar results: mean risk-adjusted performance is unchanged by the switch to SRI, with no evidence of over-or under-performance relative to the benchmark market index by any of the four funds. More interestingly, changes in (...) variability of returns over time are also modelled using generalised autoregressive conditional heteroscedasticity models, not previously applied to SRI funds so far as is known. Results show a temporary increase in variability of returns, followed by a return to previous levels after around 4 years. Evidence shows the increased variability to be associated with the adoption of SRI rather than with a change in fund management. Possible explanations for the subsequent reduction in variability include the spread of corporate social responsibility activities by firms and learning by fund managers. In addition to reporting on a previously unobserved phenomenon, this paper raises questions for further research. (shrink)

This study addresses a gap in the literature on corporate governance and corporate social responsibility by investigating whether and how board independence and institutional ownership moderate the relationship between digital transformation and corporate social performance. We find that digital transformation increases CSP using a panel dataset of Chinese publicly listed firms between 2014 and 2018. Moreover, we show that this positive impact is more pronounced when firms have higher proportions of independent directors on the board and institutional owners. These findings (...) contribute to a better understanding of CSR dynamics, supporting the formulation and implementation of efficient CSR strategies in the digital era. (shrink)

The aim of the paper is to investigate the effects of the corporate governance model on social and environmental disclosure (SED). We analyze the disclosures of the 100 U.S. Best Corporate Citizens in the period 2005–2007, and we posit a series of simultaneous relationships between different attributes of the governance system and a multidimensional construct of corporate social performance (CSP). We consider both the extent and the quality of SED, with the purpose of identifying increasing levels of corporate commitment to (...) stakeholders and shedding some light on whether SED is used as a signal or rather as a legitimacy tool. Our empirical evidence shows that the stakeholders’ orientation of corporate governance is positively associated with CSP and SED. On the other hand, we do not find support for the monitoring intensity of corporate governance being negatively associated with social performance. We also find that CSP in the “product” dimension is positively associated with the extent and quality of SED whilst CSP in the “people” dimension is negatively associated with the extent and quality of SED. At a time when shareholders and stakeholders share more common aspects in their relationships with firms, this is a significant area to explore and this research fills an important lacuna in this respect. (shrink)

This study empirically examines whether firms’ environmental capital expenditures impact institutional investors’ investment decisions in the Chinese market. We particularly examine the impact of ownership type on the relationship of environmental capital expenditures and the behavior of different types of institutional investors by classifying institutional investors into two categories, short-term and long-term investors. In addition, this study further investigates whether environmental capital expenditures related to ownership type increase firm value. We find that long-term institutional investors tend to invest in state-owned (...) firms making environmental capital expenditures. Results also indicate that, with governmental backing and encouragement, the market value of SOEs making more environmental capital expenditures is likely to increase. However, no similar results are found for non-SOEs. (shrink)

Environmental, social, and governance (ESG) investing is synonymous with sustainable investment for socially responsible investors. Unfortunately, the diversity of ESG investing remains unattended amidst the growth in ESG literature, as the academic literature focuses dominantly on measuring performance. An understanding of a wide range of subjects entailing ESG is required before future research on ESG investing is performed. To overcome the challenge, this systematic literature review uses bibliometric mapping to reveal four significant research themes within the ESG investing literature: investor (...) behavior and motivations for ESG investing; cost and risk mitigation in ESG investing; portfolio screening and ESG investing; and ESG performance. The review critically examines each theme and broadens the research agenda for future studies. In addition to the significant themes, this paper also discusses theoretical and recent research trends in the ESG investing literature. The review identifies clashes and crossovers between these themes to appropriately interpret one theme using another and emphasizes the heterogeneity in ESG investing. Lastly, discussion over concerns and criticisms of ESG investing highlights greenwashing as a major cause of concern for investors. (shrink)

For more than 15 years, the investment community and the academic community have written extensively on socially responsible investment (SRI). Despite the abundance of SRI thought, the adoption of SRI practices among institutional investors is a comparative rarity. This paper endeavours to achieve two goals. First, by integrating the practitioner and academic literature on the topic, the paper attempts to identify the many impediments to SRI in Europe from an institutional investor's perspective. Second, the paper proposes a unitary framework to (...) conceptually organize the impediments to SRI by using insights from different relevant research perspectives: behavioural finance, organizational behaviour, institutional theory, economic sociology, management science and finance. The paper concludes by presenting the main shortcomings within both the academic and the practitioner literature on SRI and by providing conceptual and methodological recommendations for further research. (shrink)

The study empirically investigates the relationship between corporate governance and the triple bottom line sustainability performance through the lens of agency theory and stakeholder theory. We claim, in fact, that no single theory fully accounts for all the hypothesised relationships. We measure sustainability performance through manual content analysis on sustainability reports of the US-based companies. The study extends the existing literature by investigating the impact of selected corporate governance mechanisms on each dimension of sustainability performance, as defined by the GRI (...) framework. Our approach allows to identify which governance mechanisms foster triple bottom line performance, also revealing that some mechanisms fit only specific dimension of sustainability. The fact-based findings provide support for a new beginning in the theorising process in which the theories must try not only to provide rationale for the impact of corporate governance on sustainability, but also to explain which dimension of sustainability might be more affected. The most important implication for practitioners is the support for sustainability practices, which may be gained through implementation of particular corporate governance mechanisms. The findings contribute also to the improvement of the ongoing standard setting process, in particular as it concerns the in-depth revision of the economic dimension of sustainability carried out under the new GRI framework. (shrink)

This study examines the relation between corporate social responsibility and institutional investor ownership, and the impact of this relation on stock return volatility. We find that institutional ownership does not strictly increase or decrease in CSR; rather, institutional ownership is a concave function of CSR. This evidence suggests that institutional investors do not see CSR as strictly value-enhancing activities. Institutional investors adjust their percentage of ownership when CSR activities go beyond the perceived optimal level. Employing the path analysis, we also (...) examine the mediating effect of institutional ownership on the relation between CSR and stock return volatility. We find that CSR decreases stock return volatility at a decreasing rate through its effect on institutional ownership. Our results remain robust under several different CSR measures and estimation methods. (shrink)

We examine whether the behavior of institutional investors representatives on boards leads to observable differences in corporate finance. We find that directors representing pressure-sensitive investors prefer lower financial leverage whereas pressure-resistant directors show no particular preference. When analyzed separately, directors appointed by banks and insurance firms have different attitudes. Bank representatives on boards increase both the financial leverage and the banking debt. This result suggests that some types of institutional directors provide financial resources to the firms on whose board they (...) sit, supporting the view that boards manage the uncertainty associated with strategic decision making and provide firms with preferential access to resources and financial expertise. This research has interesting academic and policy implications for the debate over the proper degree of institutional involvement in corporate governance. Different institutional investors have different agendas and incentives for corporate governance, and, therefore, both researchers and policy makers should no longer consider institutional investors as a whole. In addition, our paper calls for new research on the causes and implications of institutional investor involvement in the corporate governance of nonfinancial firms. This new research could require new insights on the dynamics within the boards and on the interplay among the knowledge, incentives and attitudes of quite different directors. (shrink)

The importance of communicating corporate social responsibility (CSR) not only to socially responsible investors but also to the mainstream of the financial community is gaining importance in a more competitive capital market environment. This article looks at how equity analysts at the German stock exchange in Frankfurt – individuals who are not particularly involved in socially responsible investment (SRI) research – perceive economic, legal, ethical and philanthropic responsibility strategies. The evidence obtained in our interviews suggests that responsibility issues are increasingly (...) becoming part of mainstream investment analysis. However, for them to play a larger part in the future, investor relations personnel must frame responsibility strategies in a way that is more consistent with the financial community's perspective. In particular, the impact of CSR measures on strategic development, competitive anticipation and creating trust with stakeholders are key in leveraging CSR in financial communications. (shrink)

The importance of communicating corporate social responsibility (CSR) not only to socially responsible investors but also to the mainstream of the financial community is gaining importance in a more competitive capital market environment. This article looks at how equity analysts at the German stock exchange in Frankfurt – individuals who are not particularly involved in socially responsible investment (SRI) research – perceive economic, legal, ethical and philanthropic responsibility strategies. The evidence obtained in our interviews suggests that responsibility issues are increasingly (...) becoming part of mainstream investment analysis. However, for them to play a larger part in the future, investor relations personnel must frame responsibility strategies in a way that is more consistent with the financial community's perspective. In particular, the impact of CSR measures on strategic development, competitive anticipation and creating trust with stakeholders are key in leveraging CSR in financial communications. (shrink)

Based on the concept of shareholder primacy, many scholars have argued that it is more important for businesses to earn profits for their shareholders than to provide benefits to society at large. Corporate social responsibility is often regarded as an investment that comes at the expense of shareholders. In contrast, research analyzing the connections between the equity ownership structure of a company and its level of CSR engagement suggests that CSR offers benefits to shareholders that go beyond direct financial returns (...) from investments. This study provides a comprehensive review and systematic assessment of theoretical considerations and approaches regarding different forms of equity ownership and their relationships to CSR, and it discusses the relevant benefits and motivations of shareholders. The perceived value of these CSR benefits varies among different types of shareholders, as they assign unequal values to short-term financial or to rather long-term CSR benefits. Based on a literature sample of 146 publications, this review demonstrates central problems inherent in previous analyses. Given the ambiguous and partially contradictory findings of prior research, this study identifies potential moderating influences that help clarify empirical evidence. A contingency approach is suggested in future research, as this can help resolve the problem of contradictory empirical findings and theoretical arguments. (shrink)

In this study, we explore the role of Chief Executive Officers’ incentives, split between monetary and non-monetary, in relation to corporate social responsibility. We base our analysis on a sample of 597 US firms over the period 2005–2009. We find that both monetary and non-monetary incentives have an effect on CSR decisions. Specifically, monetary incentives designed to align the CEO’s and shareholders’ interests have a negative effect on CSR and non-monetary incentives have a positive effect on CSR. The study has (...) important implications for the design of executive remuneration plans, as we show that there are many levers that can affect the CEO’s decisions with regard to CSR. Our evidence also confirms the prominent role of the CEO in relation to CSR decisions, while also recognizing the complexity of factors affecting CSR. Finally, we propose a research design that takes into account endogeneity issues arising when examining compensation variables. (shrink)

Business Ethics, the Environment & Responsibility, Volume 31, Issue 2, Page 307-322, April 2022.

Through a combination of a controlled experiment and a survey, we examine the effect of voting power on shareholders’ voting behavior at general meetings. To avoid a selection bias, common in archival voting data, we exogenously manipulate shareholders’ power to affect the outcome. Our findings suggest that, when it comes to corporate decisions involving conflicts of interest, voting power nudges shareholders to oppose management and to choose the “right” alternative, that is, vote against a proposal which _prima facie_ does not (...) serve the company’s best interest. This effect obtained even when the dissenting vote contravened the choices of all other voters. Furthermore, the drive “to do the right thing” was established as significant, above and beyond the size of the economic stake. We also demonstrate that strategic voting among institutional investors is contingent on voting power: when in a position to affect the outcome of a vote, institutional investors tend to eschew strategic considerations and display fewer consistent patterns in their voting, compared to situations in which their ability to make a difference is limited. In anticipation of a “bad” proposal to be put to vote at the general shareholder meeting, institutional investors prefer to negotiate terms with management beforehand, and vote against it only after such negotiations fail. Our results shed new light on the “behind the scenes” processes in shareholder voting and underscore the importance of institutional investor agency to corporate governance, accountability, and minority shareholder representation. (shrink)

The growth of socially responsible investment (SRI) on public financial markets has drawn considerable academic attention over the last decade. Discarding from the previous literature, this article sets up to analyze the Private Equity channel, which is shown to have the potentiality to foster sustainable practices in unlisted companies. The fast integration of the environmental, social and governance issues by mainstream Private Equity investors is unveiled and appears to have benefited from the maturation of SRI on public financial markets and (...) the impetus of large conventional actors. Hypotheses on the characteristics and drivers of this movement are proposed and tested on a unique database covering the French Private Equity industry in 2011. Empirical findings support that Private Equity socially responsible investing is characterized by investor engagement and strategically driven by a need for new value creation sources, increased risk management and differentiation. In particular, results show that independent funds, which need to attract investors, are more likely than captive funds to develop socially responsible practices. Evolution of the movement and future research paths are proposed. (shrink)

This study uses insights from the political perspective on corporate governance to investigate the influence of geographic concentration of institutional blockholders on workplace safety violations. When institutional investors who have a blockholding stake (i.e., institutional blockholders) are geographically concentrated, corporate managers are more likely to pursue efficiency at the expense of employee interests because these blockholders may find it easier to coordinate their actions, strengthening their power over corporate managers and ultimately giving rise to more workplace safety violations. We also (...) contend that the influence of institutional blockholders’ geographic concentration on workplace safety violations hinges upon the ownership of employees, socially responsible investment funds, and the CEO. Findings from a longitudinal sample of 1316 U.S. firms support our arguments. This study contributes to a nascent stream of research examining the influence of capital market participants on workplace safety by highlighting the role of institutional blockholders’ geographic concentration as a new channel through which investors can shape employee outcomes. (shrink)

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)

In this study, we explore how investors reconcile information on firms’ social responsibility with analysts’ assessments of future firm risk in the pricing of long-term bonds. We ask whether investors pay attention to small strides toward and/or small slips away from socially responsible behavior, arguing that analysts’ corporate bias toward gains and against losses influences investor reactions to corporate social responsibility. We hypothesize that analysts notice and reward improvements in social responsibility, yet excuse lapses. We find support for this hypothesis, (...) using a unique dataset of long-term bonds that combines lagged measures of firm-level financial and social performance with bond-specific data pertaining to risk of default and pricing. The empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under-examined root cause of longer-term, larger-scale distortions in financial market returns regarding corporate social performance. Our findings elaborate earlier behavioral research on how corporate bias influences analysts’ short-term assessments of economic risk, by theorizing why this corporate bias may influence long-term assessments of social risk. Our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today’s social action versus inaction. (shrink)

The history of corporations in the United States (U.S.) is much older than the country, as it must be understood in the context of the history of peoples of Europe who eventually dominated the North American continent in the seventeenth and eighteenth centuries. These European settlers came, in part, to achieve economic prosperity for themselves and, in many cases, for early forerunners of the modern corporation. These business organizations had predecessors in Europe millennia earlier as ancient Romans had developed a (...) functional and successful form of corporation for the purpose of conducting commerce in the Roman Empire. In the decades that followed the founding of the U.S. in 1776, corporations evolved from rare, small, closely controlled business organizations with a multitude of restrictions to very large, very powerful modern institutions that enjoy many of the legal rights of humans. With this evolution came ethical issues, as (1) the ethical distance was altered between corporate decision-makers and those affected by those decisions, and (2) many of the legal rights of individual humans were extended, through litigation, to corporations. This article explains the historical development of the U.S. corporation and identifies 20 Critical Events in the Ethics of Corporation History (CEECH). An understanding of these historical events may facilitate comprehension of many of the current ethical issues associated with a legal organizational form that profoundly affects business and society. (shrink)

Corporate reputation is decisive for stakeholders’ supporting or repelling behavior and, therefore, one of firms’ most valuable intangible resources. Drawing on signaling theory, this paper focuses on the usefulness of voluntarily provided corporate reputation disclosures (CRDs) and examines their impact on stakeholders’ attitudinal and behavioral outcomes. Our experimental vignette studies reveal that CRDs reduce stakeholders’ information asymmetries, which positively affects perceived organizational performance and corporate reputation as well as stakeholders’ purchase, investment, and employment intentions. The relationships between CRDs and stakeholders’ (...) behavioral intentions are sequentially mediated by changes in the perceived organizational performance and corporate reputation. This implies that stakeholders use the signals transmitted by CRDs to adjust their perceptions of a firm’s organizational performance and corporate reputation, which ultimately induces their behavioral outcomes. Overall, our empirical results show the usefulness of CRDs for firms in effectively developing stakeholder relationships and, thereby, contributing to assure their going concern. For stakeholders, CRDs improve efficiency in evaluating a firm’s future development. (shrink)

In our study, we examine the association between hedge fund activism and a target firm’s corporate social responsibility (CSR) activities and whether activists can promote socially responsible investments while upholding shareholders’ interests. Using different matched samples, we find a strong positive association between the target firm’s CSR in the year before it is targeted by activists and its probability of being targeted by a hedge fund. Classifying hedge fund activists into socially and non-socially responsible funds based on their objectives, we (...) find that both give similar level of consideration to a firm’s CSR activities when initiating campaigns. Similar to DesJardine and Durand (DesJardine and Durand, Strategic Management Journal 41:1054–1082, 2020), we demonstrate that hedge funds have, on average, a negative impact on target firms’ CSR in the years following the initial investments. Complementary to DesJardine and Durand (DesJardine and Durand, Strategic Management Journal 41:1054–1082, 2020), we compare the two types of hedge funds and find an asymmetric effect of the hedge funds’ campaigns. Socially responsible hedge fund campaigns are associated with a large _increase_ in their target’s CSR, whereas non-socially responsible hedge funds _decrease_ this measure in their target. Finally, we find that target firms exhibit a long-term improvement in future stock returns and profitability. These findings provide evidence that certain types of activists, such as socially responsible funds, promote both _stakeholder_ and _shareholders’_ long-term interests. (shrink)

Socially Responsible Investment (SRI) indices play a major role in the stock markets. A connection between doing good and doing well in business is implied. Leading indices, such as the Domini Social Index and others, exemplify the movement toward investing in socially responsible corporations. However, the question remains: Does the ratings-based methodology for assessing corporate social responsibility (CSR) provide an incentive to firms excluded from SRI indices to invest in CSR? Not in its current format. The ratings-based methodology employed by (...) SRI indices in their selection processes excludes many corporations by creating limited-membership lists. This received ratings-based structure is yet to offer an incentive for most of the excluded corporations to invest in improving their levels of CSR. We, therefore, ask under what circumstances a ratings-based method for assessing CSR could provide an incentive to firms excluded from SRI indices to invest in CSR. In this article, we attempt to offer a theoretical reply to this question. We show that when all firms are publicly ranked according to SRI index parameters, such indices can indeed create a market incentive for increased investment by firms in improving their performance in the area of social responsibility. We further show that this incentive tapers off as the amount of investment required exceeds a certain point or if the amount of payback on that investment fails to reach a certain threshold. (shrink)

Socially Responsible Investment indices play a major role in the stock markets. A connection between doing good and doing well in business is implied. Leading indices, such as the Domini Social Index and others, exemplify the movement toward investing in socially responsible corporations. However, the question remains: Does the ratings-based methodology for assessing corporate social responsibility provide an incentive to firms excluded from SRI indices to invest in CSR? Not in its current format. The ratings-based methodology employed by SRI indices (...) in their selection processes excludes many corporations by creating limited-membership lists. This received ratings-based structure is yet to offer an incentive for most of the excluded corporations to invest in improving their levels of CSR. We, therefore, ask under what circumstances a ratings-based method for assessing CSR could provide an incentive to firms excluded from SRI indices to invest in CSR. In this article, we attempt to offer a theoretical reply to this question. We show that when all firms are publicly ranked according to SRI index parameters, such indices can indeed create a market incentive for increased investment by firms in improving their performance in the area of social responsibility. We further show that this incentive tapers off as the amount of investment required exceeds a certain point or if the amount of payback on that investment fails to reach a certain threshold. (shrink)