Is Institutional Ownership Related to Corporate Social Responsibility? The Non-Linear Relation and Its Implication for Stock Return Volatility

63 Pages Posted: 24 Sep 2015 Last revised: 20 Oct 2015

See all articles by Maretno A. Harjoto

Maretno A. Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS)

Hoje Jo

Santa Clara University

Yongtae Kim

Santa Clara University - Leavey School of Business

Date Written: September 23, 2015

Abstract

This study examines the relation between corporate social responsibility (CSR) and institutional investor ownership, and the impact of this relation on stock return volatility. We find that institutional ownership does not strictly increase or decrease in CSR; rather, institutional ownership is a concave function of CSR. This evidence suggests that institutional investors do not see CSR as strictly value enhancing activities. Institutional investors adjust their percentage of ownership when CSR activities go beyond the perceived optimal level. Employing the path analysis, we also examine the mediating effect of institutional ownership on the relation between CSR and stock return volatility. We find that CSR decreases stock return volatility at a decreasing rate through its effect on institutional ownership. Our results remain robust under several different CSR measures and estimation methods.

Keywords: corporate social responsibility, institutional ownership, stock return volatility, socially responsible investing

JEL Classification: G20, M14, G29

Suggested Citation

Harjoto, Maretno Agus and Jo, Hoje and Kim, Yongtae, Is Institutional Ownership Related to Corporate Social Responsibility? The Non-Linear Relation and Its Implication for Stock Return Volatility (September 23, 2015). Journal of Business Ethics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2664439

Maretno Agus Harjoto (Contact Author)

Pepperdine University - Pepperdine Graziadio Business School (PGBS) ( email )

Drescher Campus Suite 344
24255 Pacific Coast Highway
Malibu, CA 90263
United States
(310) 506-8542 (Phone)
(310) 506-4126 (Fax)

HOME PAGE: http://scholar.google.com/citations?hl=en&user=9-PfQi0AAAAJ

Hoje Jo

Santa Clara University ( email )

Santa Clara, CA 95053
United States
408-224-8890 (Phone)
408-554-4029 (Fax)

Yongtae Kim

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-4667 (Phone)
(408) 554-2331 (Fax)

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