Institutional Investors and Corporate Environmental, Social, and Governance Policies: Evidence from Toxics Release Data
Management Science, Forthcoming
58 Pages Posted: 23 Jun 2013 Last revised: 20 Jan 2018
Date Written: November 21, 2017
This paper studies whether institutional investors influence corporate environmental, social, and governance (ESG) policies and the impact of such influence on firm performance. We use facility-level toxic release data to proxy for a firm’s ESG policies. We use geographic distance and the size of equity ownership to proxy for institutions’ interests and preferences. We find robust evidence that local institutional ownership reduces the amount of toxic chemicals released by a nearby facility into the environment. Pollution abatement policies implemented in the presence of high levels of local institutional ownership enhance firm performance. The overall evidence suggests that ESG appeals to a diverse set of institutional investors. There is no evidence that pollution abatement policies are detrimental to firm value. Our results support Jensen (2001)’s theory of enlightened value maximization that firm value is maximized in the long run when the interests of shareholders and other stakeholders are aligned.
Keywords: Environmental, social, and governance; Corporate social responsibility; Institutional investors; Shareholder value maximization; Stakeholder theory; Geographic distance; Toxic Release Inventory
JEL Classification: D22, G34, M14
Suggested Citation: Suggested Citation