Shifting Stakeholders Logics: Foreign Institutional Ownership and Corporate Social Responsibility

Abstract

This study examines the role of foreign institutional ownership in corporate social responsibility. Using the Shanghai-Hong Kong Stock Connect as a quasi-natural experiment, our difference-in-differences estimation shows that foreign institutional ownership drives firms’ CSR improvements. Further, the positive effect of FIO on CSR is motivated by social norms, not by profit maximization. We also provide evidence that this effect of FIO on CSR is more pronounced among firms with fewer political connections and with male CEOs. Overall, our results indicate that the native social norms of FIO can be transplanted to their destination markets and thus demonstrably motivate CSR performance there.

Keywords: Foreign institutional ownership; corporate social responsibility; social norms; China

JEL Classification: G23, G29, G30, G34