Institutional Ownership and Corporate Social Responsibility: The Moderating Effect of Geographic Proximity

Abstract

This paper investigates the impact of the ownership by institutional investors who are geographically close (local) and have long-term investment horizons (long-term) on corporate social responsibility (CSR) activities. Using a panel data of S&P 500 firms over the period between 1995 and 2009, we show a differential relation between corporate social performance (CSP) and long-term institutional investors that varies in geographic proximity to the firms they invest in. Specifically, long-term institutional ownership that is geographically proximate (local) is associated with higher corporate social performance, especially CSR strengths, while non-local long-term institutional ownership is not associated with CSR strengths. The positive relation between local long-term institutional ownership and CSP is more pronounced in firms where the dealing of soft information, which is hard to quantify, is necessary. The results are robust to various tests and are consistent with the Stakeholder Salience Theory premises, as local long-term institutional owners are stakeholders with high salience.