Does Voluntary Corporate Social Performance Attract Institutional Investment? Evidence from China

20 Pages Posted: 18 Sep 2017

See all articles by Mingzhu Wang

Mingzhu Wang

King'S College London

Yugang Chen

Sun Yat-sen University

Date Written: September 2017


Manuscript Type. Empirical.

Research Question/Issue. This study analyses whether institutional investment in China is affected by the voluntary corporate social performance (CSP) of firms, after controlling for ownership structure, corporate governance, compensation, and other firm characteristics.

Research Findings/Insights. Firms with superior voluntary CSP attract more institutional investment, which remains robust after controlling for the reverse causality problem. Mutual funds are the main driver of the institutional investment pattern in China and they invest more in firms that achieve better voluntary CSP with respect to employment equality and customer care. Insurance companies and social security funds invest more in firms that take care of their customers. Qualified foreign institutional investors (QFIIs) are the only type of institutional investors tilting their investment in favor of firms doing well at saving energy.

Theoretical/Academic Implications. Our empirical evidence suggests that different types of institutional investors show preferences toward different aspects of investee firms’ voluntary CSP. We innovatively separate firms’ voluntary CSP into expected components that can be explained by firm characteristics and unexpected components (surprises) that cannot be explained by firm characteristics. Although institutional investors, in general, and mutual funds and QFIIs, in particular, own more shares in firms with more voluntary CSP surprises, only mutual funds trade on them in the subsequent year.

Practitioner/Policy Implications. Foreign institutional investors invest more in firms with better voluntary CSP, especially with respect to energy‐saving and environmental issues, but they do not show a significant preference toward firms with better corporate governance in China. Our paper offers implications for policy makers in transitory and emerging economies with regard to encouraging foreign institutional investors’ equity investment.

Keywords: Corporate Governance, China, Corporate Social Performance, Institutional Investment

Suggested Citation

Wang, Mingzhu and Chen, Yugang, Does Voluntary Corporate Social Performance Attract Institutional Investment? Evidence from China (September 2017). Corporate Governance: An International Review, Vol. 25, Issue 5, pp. 338-357, 2017, Available at SSRN: or

Mingzhu Wang (Contact Author)

King'S College London ( email )

30 Aldwych
Franklin-Wilkins Building
London, WC2B 4BG
United Kingdom

HOME PAGE: http://

Yugang Chen

Sun Yat-sen University ( email )

135, Xingang Xi Road
Guangzhou, Guangdong 510275

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