Center for Advancing Accounting

Do Foreign Institutions Avoid Investing in Poorly CSR-Performing Firms?

• In Event: Impact of CSR and ESG on Valuation

Abstract

We examine the impact of Corporate Social Responsibility (CSR) on the investment decisions of foreign institutional investors. Using foreign portfolio holdings and CSR performance scores, we document a positive impact of CSR performance on foreign institutional investor holdings. We further document arbitrageur i.e., independent, foreign investors are affected by CSR performance while norm-constrained i.e., grey, foreign investors do not consider CSR when forming portfolio allocations. Cross-sectional tests indicate a stronger positive impact of CSR on foreign institutional investor holdings when firms are domiciled in countries with stronger disclosure and investor protection regulations. The results are robust to exogenous shocks, instrumental variable tests, and alternate specifications. Overall, this study documents an externality role of CSR on foreign funding beyond societal contributions.

Authors

• Abdul Mohi Khizer, University of Toronto

• Samir Trabelsi, Brock University

• Amna Chalwati, St. Mary's University