Local CSR, local ownership and firm value

This paper examines how local/global CSR activity induced local/remote ownership affects firm performance. The results show that local CSR activity generates positive externality to local owners, who in turn increase their ownership, and hence, also their monitoring role in local firms. Global CSR activity builds public image, and thus attract remote investors to local firms, which increases diversification and hence, liquidity of firm stock. The shift in local ownership increases firm value more for global CSR activities that target a broader group of stakeholders. Thus, some monitoring by local owners is necessary to prevent overinvestment in CSR that might lead to the manifestation of agency problems. In the short-run stock returns increase more for positive news on global CSR activities, partly, because of overreaction. In the long-run there is a return reversal, however, stock returns are still positive, indicating that CSR activities not only generate overreaction but also influence firm fundamentals.