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Institutional Investors and Corporate Environmental, Social, and Governance Policies: Evidence from Toxics Release Data

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  • Incheol Kim

    (Robert C. Vackar College of Business and Entrepreneurship, University of Texas Rio Grande Valley, Edinburg, Texas 78520)

  • Hong Wan

    (School of Business, State University of New York, Oswego, New York 13126)

  • Bin Wang

    (College of Business Administration, Marquette University, Milwaukee Wisconsin 53233)

  • Tina Yang

    (School of Business, Villanova University, Villanova, Pennsylvania 19085)

Abstract

This paper studies the role of institutional investors in influencing corporate environmental, social, and governance (ESG) policies by analyzing the relation between institutional ownership and toxic release from facilities to which institutions are geographically proximate. We develop a local preference hypothesis based on the delegated philanthropy and transaction-costs theories. Consistent with the hypothesis, local institutional ownership is negatively related to facility toxic release. The negative relation is stronger for local socially responsible investing (SRI) funds, local public pension funds, and local dedicated institutions. We also find that the relation is more negative in communities that prefer more stringent environmental policies and in communities of greater collective cohesiveness. Local institutional ownership, particularly local ownerships by SRI funds and public pension funds, is positively related to the probability that an ESG proposal is either introduced or withdrawn. The paper sheds light on the drivers behind institutions’ ESG engagement and their effectiveness in influencing ESG.

Suggested Citation

  • Incheol Kim & Hong Wan & Bin Wang & Tina Yang, 2019. "Institutional Investors and Corporate Environmental, Social, and Governance Policies: Evidence from Toxics Release Data," Management Science, INFORMS, vol. 65(10), pages 4901-4926, October.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:10:p:4901-4926
    DOI: 10.1287/mnsc.2018.3055
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