The Role of Foreign Institutional Investors in Corporate Social Responsibility: Evidence from Chinese Listed Firms

46 Pages Posted: 10 Jan 2022 Last revised: 6 Jul 2022

See all articles by Yunhe Yunhe

Yunhe Yunhe

East China Normal University

Yu Liu

University of Texas Rio Grande Valley

Mihail K. Miletkov

University of New Hampshire - Paul College of Business and Economics

Tina Yang

University of South Florida - Muma College of Business

Date Written: June 20, 2022

Abstract

This study examines the interplay between two major global trends – the growing role of foreign institutional investors (FII) due to global financial liberalization and the embracement of corporate social responsibility (CSR) as an investment ethos – in the world’s second largest economy. Using a sample of 17,894 firm-year observations representing 3,518 Chinese listed firms, we find that CSR performance influences the portfolio allocation decisions of certain types of institutional investors – those from Scandinavian countries. Importantly, we document that while CSR is, on average, positively related to firm value this relation is significantly stronger in firms with a higher level of ownership by FIIs. This finding is robust to a battery of endogeneity checks including a quasi-natural experiment and is largely attributed to the monitoring and advising roles of FIIs. Finally, we document that FIIs enhance the firm’s ability to harness the power of CSR as a driver of innovation.

Keywords: Foreign Institutional Investors; Corporate Social Responsibility (CSR); Environmental, Social, and Governance (ESG); Firm Performance; Innovation; China

JEL Classification: F21; F39; G11; G15; G23; G32; G34; M14; O16; O31

Suggested Citation

Li, Yunhe and Liu, Yu and Miletkov, Mihail K. and Yang, Tina, The Role of Foreign Institutional Investors in Corporate Social Responsibility: Evidence from Chinese Listed Firms (June 20, 2022). Available at SSRN: https://ssrn.com/abstract=4004514 or http://dx.doi.org/10.2139/ssrn.4004514

Yunhe Li

East China Normal University ( email )

Shanghai, Shanghai 200062
China

Yu Liu (Contact Author)

University of Texas Rio Grande Valley ( email )

1201 W. University Dr.
Edinburg, TX
United States

Mihail K. Miletkov

University of New Hampshire - Paul College of Business and Economics ( email )

10 Garrison Ave
Durham, NH 03824
United States

Tina Yang

University of South Florida - Muma College of Business ( email )

140 7th Ave S
St. Petersburg, FL 33701
United States
7278734568 (Phone)

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