Institutional Investors with Disciplinary History and CSR Behavior of Investee Firms

54 Pages Posted: 13 Apr 2021 Last revised: 23 Jan 2024

See all articles by Samuel B. Bonsall

Samuel B. Bonsall

Pennsylvania State University - Department of Accounting

Babak Mammadov

Clemson University - School of Accountancy & Legal Studies

Blerina Bela Zykaj

Clemson University - College of Business

Date Written: December 11, 2023

Abstract

This study analyzes the effect of institutional investors with disciplinary history (IDH) on the corporate social responsibility (CSR) activities of investee firms. We use Registered Investment Advisers’ reported violations of laws and regulations to the Securities and Exchange Commission to identify IDH. We find that IDH discourage firms’ engagement in CSR activities and attribute this regularity to institutions’ disregard for social norms. Further, we find that activist, monitoring, or investment horizon of investors does not appear to drive our results. We conduct extensive robustness tests to address endogeneity issues by employing two-stage least squares regression, regression discontinuity, and difference-in-difference identification strategies. Overall, our results suggest that institutional investors’ track record of financial misconduct has an economically significant negative impact on investee firms’ CSR activities. This study demonstrates that although constraining CSR activities is not necessarily financial misconduct in a strictly legalistic sense, it imposes significant negative externalities by deemphasizing corporate endeavors that have broader social rather than only private benefits.

Keywords: Institutional investors, institutional investors with disciplinary history, financial misconduct, corporate social responsibility, CSR

Suggested Citation

Bonsall, Samuel B. and Mammadov, Babak and Zykaj, Blerina Bela, Institutional Investors with Disciplinary History and CSR Behavior of Investee Firms (December 11, 2023). Available at SSRN: https://ssrn.com/abstract=3825090 or http://dx.doi.org/10.2139/ssrn.3825090

Samuel B. Bonsall

Pennsylvania State University - Department of Accounting ( email )

University Park, PA 16802-3306
United States

Babak Mammadov

Clemson University - School of Accountancy & Legal Studies ( email )

Clemson, SC 29634
United States

Blerina Bela Zykaj (Contact Author)

Clemson University - College of Business ( email )

225 Walter T. Cox Blvd.,
Clemson, SC 29634
United States

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