Institutional ownership and corporate social responsibility engagement : an analysis of S&P500 index

This study focused on the relationship between institutional ownership and its influence on corporate social responsibility. It considers how different financial and social motivations push institutional owners to invest in CSR. There are two main theories that have been used in order to justify why institutional owners are expected to have high CSR involvement. The stakeholder theory discusses that firms should align their actions with the interests of their respective stakeholders in order to increase economic rents. Institutional owners are in a strong position to influence this process. Second, resource based theory discusses that the accumulation of valuable, rare, inimitable and non-substitutable assets would allow firms to achieve competitive advantage and therefore profits. CSR can be considered as such an asset. Both theories imply that since institutional owners have fiduciary duties towards their clients, it is in their best interest to hold a portfolio of companies that have high CSR engagement. This research was done on the basis of total institutional ownership and ownership by short and long-term oriented institutional owners. For the former, total institutional ownership, the results were significant and positive relationship was found, confirming the hypothesis that higher proportion of institutional ownership results in higher levels of CSR. For the latter, institutional ownership by pension funds and investment firms, result showed that both of these groups have positive relationship with CSR involvement, despite that investment firms were considered as short-term oriented institutional shareholder and the relationship was expected to be negative. Overall results suggest that institutional ownership can generate real CSR impact.