Do Institutional Investors Drive Corporate Social Responsibility? International Evidence

Abstract

This paper explores both the role of institutional investors in firms’ corporate social responsibility choices and the impact of social norms on these investors. Using a decade of firm-level environmental and social (E&S) performance data from 41 countries, we find that institutional ownership is positively associated with firm-level E&S performance, with multiple tests suggesting a causal relationship. The impact of institutional investors on firms’ E&S commitments is greatest for foreign investors based in countries with strong social norms regarding E&S, which are predominantly European. Tests that segment by investor type show that these social norm effects hold even for institutional investor types that are subject to market discipline, such as investment advisors. Overall, our results indicate that institutional investors transplant their social norms into the firms they hold around the world.