Mandatory Corporate Social Responsibility and Foreign Institutional Investor Preferences
66 Pages Posted: 8 Jun 2020 Last revised: 25 Apr 2022
Date Written: May 30, 2020
This paper examines whether the heterogeneity of foreign institutional investors (FIIs) matters when investing in socially responsible investee firms. Exploiting a mandated corporate social responsibility (CSR) regulation in India and using manually collected CSR expenditure data, the results of a quasi-natural experiment confirm that firms that comply with the CSR mandate attract more investments from FIIs. However, the heterogeneity of FIIs plays a significant moderating role, as FIIs from civil law origin countries, and those considered to be independent and long-term investors, invest more in mandated CSR firms. Finally, our empirical evidence also indicates that firms that comply with the CSR mandate experience higher long-term market-based valuations in the post-CSR reform period.
Keywords: CSR expenditure, Foreign institutional investors, Legal origin, Independent and long-term investors, Market valuation
JEL Classification: G23, G38, M14
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