Effects of CSR Performance and Disclosure on Institutional Ownership

This study investigates correlations and lead-lag relationships between Corporate Social Responsibility (CSR) and the institutional ownership base of North American and European utility companies. The utility sector belongs to the best CSR performing sectors according to CSR scores and is generally seen as fairly “environmentally sensitive”. Two samples of 105 and 87 mid- to large-cap utility
companies and a panel data regression are used to examine each of the CSR dimensions (environmental, social and governance) between 2011 and 2015. Additionally, a lead-lag analysis establishes causality between the variables.
The study finds that while more socially responsible utility companies exhibit greater long-term institutional ownership (LIO), higher corporate governance disclosure and performance is accompanied by less long-term and greater short-term institutional ownership. The lead-lag analysis entirely supports a causal effect of CSR performance on LIO and a causal effect of LIO on CSR disclosure. The latter finding indicates that it is rather the long-term institutional investor influencing the CSR disclosure than the other way around. As for the short-term horizon, the lead-lag analysis shows a causal effect of CSR performance and disclosure on the short-term institutional ownership
base of sample firms.
This study contributes to scientific literature by using a recent data set, looking at both the performance and disclosure dimension of CSR. Furthermore, most prior studies have only looked at simple correlations, neglecting the causality issue. This study establishes causality between the variables with a leadlag analysis.