Restricted Shares and CSR: Evidence from Foreign Strategic Investors in China
43 Pages Posted: 10 Nov 2021
Date Written: November 1, 2021
Using the hand-collected ownership data from a large sample of Chinese listed firms, we examine the link between foreign strategic ownership and firms’ corporate social responsibility (CSR). We find that foreign strategic ownership is significantly associated with higher CSR performance. Restricted shares is the main reason that motivates foreign strategic investors (FSIs) to increase firms’ CSR engagement. The influence of foreign ownership on CSR is driven by strategic investors with non-tradable shares but not by qualified foreign institutional investors with tradable shares. FSIs with longer restriction horizon and in firms with stronger political connections are found to have more pronounced effect on CSR. We also find foreign investors’ home country characteristics, including legal system, cultural background, geographic distance, trade relationship and economic policy uncertainty, are significant factors to explain their incentives to increase firms’ CSR in China. Moreover, we confirm the shareholder monitoring is the main channel through which FSIs drive managers to improve CSR. Difference-in-differences tests and tests based on instrumental variables provide confirming evidence. Overall, our findings suggest that the restricted ownership, political connections and foreign investors’ home country characteristics provide incentives for foreign strategic investors to pay more attention on firms’ long-term reputation and thus enhance CSR engagement.
Keywords: Foreign Strategic Investors, CSR, Restricted Ownership, Investment Horizon, Monitoring
JEL Classification: G23, G34
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