Institutional ownership horizon, corporate social responsibility and shareholder value

• Published in: Journal of business research Vol. 105; pp. 61 - 79
• Main Authors: Erhemjamts, Otgontsetseg, Huang, Kershen
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.12.2019
• Subjects: Corporate social responsibility; Institutional investors; Investment horizon; Long-term investing; Short-termism; M14; Corporate social responsibility; A13; Short-termism; G23; Long-term investing; Institutional investors; Investment horizon
• ISSN: 0148-2963; 1873-7978
• DOI: 10.1016/j.jbusres.2019.05.037

A widely held view among policymakers, corporate executives and the media is that short-termism among institutional investors is increasingly prevalent. However, some institutional investors are increasingly vocal about taking a long-term approach, and these investors care about environmental, social and governance (ESG) issues. The reality is that investors are a diverse set of stakeholders with various objectives and time horizons. In the academic literature, empirical evidence on the relationship between institutional ownership horizon and corporate social responsibility (CSR) has been mixed. In this paper, we show that institutions with longer (shorter) investment horizons promote (discourage) CSR at the firm level. In addition, the higher the proportion of long-term (short-term) investors, the higher (lower) the effect of CSR on long-term (short-term) buy-and-hold returns. These findings are consistent with the view that short-termism on the part of institutional investors places short-term pressure on companies, and therefore discourages long-term investments that create value.