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

See all articles by Incheol Kim

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship

Hong Wan

State University of New York at Oswego

Bin Wang

Marquette University - College of Business Administration

Tina Yang

University of South Florida

Date Written: November 21, 2017

Abstract

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

Kim, Incheol and Wan, Hong and Wang, Bin and Yang, Tina, Institutional Investors and Corporate Environmental, Social, and Governance Policies: Evidence from Toxics Release Data (November 21, 2017). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2283134 or http://dx.doi.org/10.2139/ssrn.2283134

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship ( email )

1201 W University Dr
Edinburg, TX 78539
United States

Hong Wan

State University of New York at Oswego ( email )

School of Business
Oswego, NY 13126
United States

Bin Wang

Marquette University - College of Business Administration ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Tina Yang (Contact Author)

University of South Florida ( email )

140 7th Ave S
St. Petersburg, FL 33701
United States
7278734568 (Phone)

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