This study examines the relation between corporate social responsibility (CSR) and institutional investor ownership, and the impact of this relation on stock return volatility. We find that institutional ownership does not strictly increase or decrease in CSR; rather, institutional ownership is a concave function of CSR.

This evidence suggests that institutional investors do not see CSR as strictly value enhancing activities. Institutional investors adjust their percentage of ownership when CSR activities go beyond the perceived optimal level. Employing the path analysis, we also examine the mediating effect of institutional ownership on the relation between CSR and stock return volatility. We find that CSR decreases stock return volatility at a decreasing rate through its effect on institutional ownership. Our results remain robust under several different CSR measures and estimation methods.

By: Maretno A. Harjoto, Pepperdine University – Graziadio School of Business and Management, Hoje Jo

Santa Clara University, and Yongtae Kim, Santa Clara University – Leavey School of Business

You can find the SSRN article here