It's About Time! The Influence of Institutional Investment Horizon on Corporate Social Responsibility

Abstract

The U.S. equity market has witnessed the rising power of institutional investors over the past three decades. Yet, even as these institutional owners become more powerful their effect on corporate social responsibility (CSR) still remains unclear. The present study attempts to fill this gap by examining these investors’ influence on CSR along the dimension of investor time horizon. We find robust evidence that ownership by institutional investors with long investment horizon is positively associated with higher CSR scores while ownership by institutional investors with short investment horizon is either negatively or not significantly associated with CSR scores. The same results hold when we consider ownership by public pension funds, which present a unique case in which a theoretically long-term horizon has recently been questioned, due to pressures towards short-termism. Granger causality tests also show that the direction of the observed effects goes from institutional ownership to CSR and not the opposite.

Keywords: Institutional Investors, Investment Horizon, CSR

JEL Classification: G23, G30, M14