Does foreign investment matter? Effects of foreign investment on the institutionalisation of corporate social responsibility by Japanese firms

Abstract

The increase in foreign direct and portfolio investment and the growing interest in the institutionalisation of Corporate Social Responsibility (CSR), such as the establishment of particular CSR sections, the appointment of CSR executives, and the documentation of guidelines for CSR, are two of the most notable phenomena in the Japanese business world in recent years. We examine whether these phenomena are associated by asking whether foreign investment matters in Japanese firms’ institutionalisation of CSR. To answer this question, we begin by discussing two competing views on how foreign investors are perceived by Japanese managers: Are foreign investors pursuers of short-term profit or diffusers of innovative practices? We then proceed to an empirical analysis where we examine if there is any statistically significant relationship between foreign investment and CSR, using a data set covering 749 Japanese firms. The results indicate that foreign investment is positively associated with the institutionalisation of CSR. Our analysis also suggests that the degree of international business contact, firm size and membership of certain business groups are positively related with the institutionalisation of CSR, whereas sectoral differences seem to have no effect.