Shifting Logics: Foreign Institutional Investors Drive Corporate Social Responsibility – Evidence from a Quasi-Natural Experiment

Abstract

Institutional logic change has critical impact on firms strategic decisions. Grounded in stakeholder logic perspective, this paper examines a stakeholder logic change from domestic institutions to foreign institutions and its impact on corporate social responsibility (CSR). Using the Shanghai-Hong Kong Stock Connect as a quasi-natural experiment, we find that foreign institutional ownership drives firms’ CSR improvements. We further show that the positive effect of FIIs on CSR is motivated by social norms and not by profit maximization. In addition, we provide evidence that this effect of FIIs on CSR is more pronounced among firms with (i) fewer political connections; and (ii) male CEOs. Implication are discussed.