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Investment horizon and corporate social performance: the virtuous circle of long-term institutional ownership and responsible firm conduct

Author

Listed:
  • Ioannis Oikonomou
  • Chao Yin
  • Lei Zhao

Abstract

We investigate the relationship between corporate social performance and institutional ownership. We distinguish between long-term and short-term institutional investors using holdings-based measures which directly capture the investment horizon of each institution. Our analysis shows that long term institutional investment is positively related to corporate social performance (mainly by an avoidance of investing in firms with significant controversies) whereas short-term institutional investment is negatively related to corporate social performance. Further investigation reveals that increased holdings of a firm by long-term investors are positively associated with its future corporate social performance. Hence, we provide evidence of a ‘virtuous circle’ between long term investment and social responsibility.

Suggested Citation

  • Ioannis Oikonomou & Chao Yin & Lei Zhao, 2020. "Investment horizon and corporate social performance: the virtuous circle of long-term institutional ownership and responsible firm conduct," The European Journal of Finance, Taylor & Francis Journals, vol. 26(1), pages 14-40, January.
    • Handle: RePEc:taf:eurjfi:v:26:y:2020:i:1:p:14-40
    DOI: 10.1080/1351847X.2019.1660197
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    Cited by:

    1. Othar Kordsachia & Maximilian Focke & Patrick Velte, 2022. "Do sustainable institutional investors contribute to firms’ environmental performance? Empirical evidence from Europe," Review of Managerial Science, Springer, vol. 16(5), pages 1409-1436, July.
    2. Fernando, Guy D. & Schneible, Richard A. & Zhang, Wei, 2024. "Institutional ownership and women in the top management team," Journal of Business Research, Elsevier, vol. 170(C).
    3. Wang, Kun Tracy & Sun, Aonan, 2022. "Institutional ownership stability and corporate social performance," Finance Research Letters, Elsevier, vol. 47(PA).
    4. Chin Sok Fun & Nor Shaipah Abdul Wahab & Tye Wei Ling & Premagowrie Sivanandan & Nurliyana Haji Khalid, 2023. "Tenure of independent directors and analysts following: Moderating role of institutional ownership," Cogent Business & Management, Taylor & Francis Journals, vol. 10(3), pages 2256500-225, December.
    5. Chen, Shihua & Chen, Yulin & Jebran, Khalil, 2021. "Trust and corporate social responsibility: From expected utility and social normative perspective," Journal of Business Research, Elsevier, vol. 134(C), pages 518-530.
    6. Martí-Ballester, Carmen-Pilar, 2022. "Do renewable energy mutual funds advance towards clean energy-related sustainable development goals?," Renewable Energy, Elsevier, vol. 195(C), pages 1155-1164.
    7. Galema, Rients & Gerritsen, Dirk, 2025. "ESG rating changes and stock returns," Journal of International Money and Finance, Elsevier, vol. 154(C).
    8. David Blitz & Laurens Swinkels, 2021. "Who owns tobacco stocks?," Journal of Asset Management, Palgrave Macmillan, vol. 22(5), pages 311-325, September.
    9. Ringe Wolf-Georg, 2023. "Investor Empowerment for Sustainability," Review of Economics, De Gruyter, vol. 74(1), pages 21-52, April.
    10. Wennanxiang Wang & Ridong Hu & Cheng Zhang & Yang Shen, 2023. "Does Socially Responsible Investing Make a Better Society?—A Micro Perspective through Mutual Funds and Their Investee Companies," Sustainability, MDPI, vol. 15(11), pages 1-20, May.
    11. Wang, Yizhi & Lin, Yongjia & Fu, Xiaoqing & Chen, Songhe, 2023. "Institutional ownership heterogeneity and ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 51(C).
    12. Liu, Yang & Jin, Xiao Meng & Ly, Kim Cuong & Mai, Yong, 2024. "The relationship between heterogeneous institutional investors’ shareholdings and corporate ESG performance: Evidence from China," Research in International Business and Finance, Elsevier, vol. 71(C).
    13. Wang, Tracy & Sun, Aonan, 2022. "Institutional ownership stability and corporate social performance," MPRA Paper 112679, University Library of Munich, Germany.
    14. Barontini, Roberto & Gioja, Luigi, 2025. "The market power of ESG index providers: The effects of rebalancing ESG-themed indices," Research in International Business and Finance, Elsevier, vol. 77(PA).
    15. Philip Teng Lin & Yanhui Jin & Fei Gao & Ruifeng Yang & Qian Lin, 2023. "Institutional Investors, CSR Report Readability and the Moderating Role of ESG Performance," SAGE Open, , vol. 13(4), pages 21582440231, November.
    16. Ashton, John & Wang, Yang & Zhang, Yifei, 2024. "Does mutual fund ownership increase corporate environmental spending?," Journal of Business Research, Elsevier, vol. 184(C).

    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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