HCBE Faculty Presentations

Event Location / Date(s)

FMA Annual Meeting/Boston, MA

Event Name / Location

2017 FMA Annual Meeting Program

Presentation Date

2017

Document Type

Conference Presentation

ORCID ID

Kershen Huang0000-0002-7141-3668

Description

Institutional investors are increasingly short-term in their orientation, indicated by the record-short periods of time stocks are being held, rise of high-frequency trading, shortening average CEO tenures, and disproportionate Wall Street focus on quarterly earnings. While the increasing prevalence of short-termism has gained the attention of global forums and policy makers, the case for the long-term investment among institutional investors is far from settled in the academic community. Just like classic agency and stakeholder theories offer opposite views, empirical research on the relationship between institutional ownership and corporate social responsibility (CSR) has produced fragmented and contradictory results. Our paper seeks to address this situation by adopting a comprehensive empirical approach that reexamines the link between institutional ownership horizon and CSR. After reconciling theoretical perspectives and improving on the empirical methodology, we find that institutions with longer investment horizons promote CSR at the firm level, and that those with shorter horizons discourage it. These findings are consistent with the view that short-termism on the part of institutional investors places short-term pressure on companies, and therefore discourages long-term investments, such as environmentally and socially responsible investments. Our results are robust to using alternative measures for CSR and investment horizons, accounting for multidimensionality of CSR, and for reverse causality.

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