To investigate the impact of institutional investors on firms’ corporate social responsibility (CSR) engagement while controlling for possible endogeneity concerns, we study how Chinese listed firms adjust their CSR decisions when their institutional investors are distracted by exogenous attention-grabbing events and thus are inattentive. With a sample of Chinese listed firms from 2009 to 2017, we find a significant and robust negative relationship between institutional investor inattention and firms’ CSR engagement. This negative relationship is more pronounced for firms with more principal–agent problems and/or weaker corporate governances and is more attributable to the inattention of institutional investors with more monitoring incentives. These findings suggest that managers are less motivated to engage in CSR when they are less monitored by institutional investors, indicating that CSR is beneficial to shareholders of Chinese listed firms. Our findings also indicate that the positive impact of institutional investors on CSR may be constrained by their limited attention.
- Corporate social responsibility
- Institutional investors
- Limited attention
- Principal–agent problem
ASJC Scopus subject areas
- Business, Management and Accounting(all)