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The effect of institutional investors’ distraction on firms’ corporate social responsibility engagement: evidence from China / Cheng Xiang; Fengwen Chen; Paul Jones; Senmao Xia

Review of Managerial Science

Swansea University Author: Paul, Jones

  • Accepted Manuscript under embargo until: 12th May 2021

Abstract

To investigate the impact of institutional investors on firms’ corporate social responsibility (CSR) engagement while controlling for possible endogeneity concerns, we study how Chinese listed firms adjust their CSR decisions when their institutional investors are distracted by exogenous attention-g...

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Published in: Review of Managerial Science
ISSN: 1863-6683 1863-6691
Published: Springer Science and Business Media LLC 2020
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa54220
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Abstract: To investigate the impact of institutional investors on firms’ corporate social responsibility (CSR) engagement while controlling for possible endogeneity concerns, we study how Chinese listed firms adjust their CSR decisions when their institutional investors are distracted by exogenous attention-grabbing events and thus are inattentive. With a sample of Chinese listed firms from 2009 to 2017, we find a significant and robust negative relationship between institutional investor inattention and firms’ CSR engagement. This negative relationship is more pronounced for firms with more principal–agent problems and/or weaker corporate governances and is more attributable to the inattention of institutional investors with more monitoring incentives. These findings suggest that managers are less motivated to engage in CSR when they are less monitored by institutional investors, indicating that CSR is beneficial to shareholders of Chinese listed firms. Our findings also indicate that the positive impact of institutional investors on CSR may be constrained by their limited attention.
Keywords: Corporate social responsibility; Institutional investors; Limited attention; Principal–agent problem; China
College: School of Management