Do institutional investors have homogeneous influence on corporate social responsibility? Evidence from investor investment horizon

Abstract

Purpose

The purpose of this paper is to investigate the relation between the investment horizon of institutional investors and corporate social responsibility (CSR).

Design/methodology/approach

Utilizing unique datasets on CSR and the investor horizon measures (Gaspar et al., 2005), the authors categorize institutional investors into long-term and short-term investors. This method captures the heterogeneity of investors.

Findings

The authors show that long-term institutional investors promote CSR engagement, while short-term investors discourage it. The authors further document that shareholders’ ownership horizon has implications on corporate decisions in the CSR framework. The presence of long (short)-term institutional investors is positively (negatively) associated with dividend payout, discourages (encourages) managerial misbehaviors and enhances (reduces) firm valuation, only for firms with high CSR performance.

Research limitations/implications

Different from previous studies that treat institutional investors homogeneously, this paper provides empirical support that investors are indeed different in influencing CSR.

Originality/value

Few prior studies address the question of whether active engagement by institutional shareholders on CSR issues differs by the types of institutional ownership. The study attempts to fill this gap by examining the effects of institutions’ investment horizon, one of the major ways to classify institutional shareholders, on the CSR performance of firms.

Citation

Meng, Y. and Wang, X. (2020), "Do institutional investors have homogeneous influence on corporate social responsibility? Evidence from investor investment horizon", Managerial Finance, Vol. 46 No. 3, pp. 301-322. https://doi.org/10.1108/MF-03-2019-0121