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Journal of Business Ethics (2009) 90:114 Springer 2009 DOI 10.1007/s10551-009-0030-3
Morals or Economics? Institutional Investor Preferences for Corporate Social Responsibility
Henry L. Petersen Harrie Vredenburg
ABSTRACT. This article presents the results of a study that analysed whether social responsibility had any bearing on the decision making of institutional investors. Being that institutional investors prefer socially aligned organizations, this study explored to what extent the corporate actions and/or social/environmental investments influenced their decisions. Our results suggest that there are specific variables that affect the perceived value of the organization, leading to decisions to not only invest, but whether to hold or sell the shares, and therefore having a consequential impact on the capital markets valuation.
KEY WORDS: social responsibility, institutional investing, socialnancial performance
Introduction
Milton Friedman, the late Nobel Laureate in economics, famously said that the social responsibility of business is to increase prots. For decades his dictum served as a brake on the idea of corporate social responsibility (CSR) becoming established in business. Business leaders often used Miltons argument that adopting notions of CSR would lead society down the slippery slope to socialism. Now, it seems that social responsibility and corporate citizenship have become mainstream as evidenced by the number of companies appearing to adopt the idea in corporate practice. The reasons for this trend of CSR going mainstream are varied but an increasing number of investors being interested in so-called socially responsible funds provide one compelling incentive. According to Fortune Magazine, socially responsible investments (SRI) account for approximately $2.3 trillion of capital funds in US markets (Demos, 2006). This provides a compelling
argument for why managers of these companies are choosing to adopt CSR corporate executives generally respond to shareholders expectations because failing to do so will hurt the companys market performance and by extension will hurt executives remuneration (Mitchell et al., 1997; Wood, 1991). However, there have been suggestions that these shareholders may not be making such investments based primarily on a moral or ethical choice (Weigand et al., 1996) but may be making choices based on self-interested economic reasoning. This article presents the results of a research project that builds on the work of Graves and Waddock (1994) and of Cox et al. (2004) in identifying preferences or moderators of decision...