THE EFFECTS OF LOCAL SHAREHOLDERS ON FIRM PERFORMANCE: EVIDENCE FROM CORPORATE SOCIAL RESPONSIBILITY

Abstract

This paper shows that local institutional shareholders tend to improve firm performance through corporate social investments. Using an extensive U.S. mutual fund-firm dataset, we find that local mutual funds tend to promote corporate social responsibility (CSR). In addition, the social investments are positively associated with firm performance. Finally, it is evident that CSR mediates the relation between local ownership and firm performance. Consistent with instrumental stakeholder theory, our findings suggest that local shareholders help firms develop reputational and relationship capital through CSR and lead to higher firm performance.