The Social Responsibility of Major Shareholders

Abstract

This paper investigates the relationship between ownership and corporate social responsibility. There are at least two reasons why ownership may have an impact on corporate social responsibility. First, major shareholders are visible to outsiders and may therefore become the target of activists if they do not prevent their firm's management from making socially irresponsible decisions. Second, high levels of corporate social responsibility may improve financial performance. Corporate social responsibility would then be one of the factors of good management that a major shareholder would enforce in her monitoring effort.

Similar to recent studies on the link between financial profitability and corporate social performance, we distinguish between two components of social responsibility: stakeholder management and social issue participation. Hillman and Keim (2001) find that the former has a positive impact on firm value whereas the latter has a negative impact. Using detailed ownership data and data on corporate social responsibility for the S&P500 firms, we analyse whether the existence of a major shareholder increases the level of stakeholder management or social issue participation. Although, we find similar signs and levels of significance to previous studies on the control variables in our regression, none of our ownership variables has an effect on social performance.

Keywords: Corporate social responsibility, corporate governance, ownership, and financial performance

JEL Classification: G3, M14