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    • Introduction The possibility that firms can develop

    2018-11-12

    Introduction The possibility that firms can develop a competitive edge over rivals by investing in social responsibility has been made increasingly likely over recent years by changes in investors׳ behavior and attitudes towards the society (Graves & Waddock, 1994; Saleh, Zulkifli, & Muhamad, 2010; Wahba, 2008b; Wahba & Elsayed, 2014a). As such, the concept of corporate social responsibility (CSR) is ever more on the agenda of business organizations. Despite literature suggests different definitions of CSR, generally, it mglur antagonist refers to “the firm׳s consideration of and response to issues beyond the narrow economic, technical and legal requirements of the firm to accomplish social benefits along with the traditional economic gains which the firm seeks” (Davis, 1973, p. 313). Change in corporate ownership structure with an increase in the stakes of institutional investors such as banks, mutual funds, insurance companies and pension funds (Sundaramurthy, Rhoades, & Rechner, 2005) has motivated many scholars to investigate the relationship between social responsibility and institutional investors. In this context, prior work has presented two contested perspectives. The first perspective argues for a positive relationship between social responsibility and institutional investors. The underlying premise of this argument is that since institutional investors are risk-averse (Mahoney & Roberts, 2007), and firm׳s reputation in social and environmental responsibility reduces stocks׳ volatilities (Petersen & Vredenburg, 2009), firms that invest in social programs and initiatives will be able to attract more institutional investors (Graves & Waddock, 1994). The other perspective argues for a negative relationship between social responsibility and institutional investors on the basis that social responsibility orientation does not match with institutional investors׳ investment horizon. In other words, because investing in social responsibility programs and initiatives is likely to lead to considerable costs in the short term (Hart & Ahuja, 1996) and the market often responses to social responsibility initiatives in the long-term (Shank, Manullang, & Hill, 2005), institutional investors are less likely to prefer socially responsible firms. This is because short-term performance cycles discourage them from supporting long-term projects as institutional investors mainly prefer near-term earnings (Bushee, 2001; Koh, 2003). In a similar vein, empirical studies that have examined the relationship between social responsibility and institutional investors offer inconclusive evidence (Coffey & Fryxell, 1991; Cox, Brammer, & Millington, 2004; Graves & Waddock, 1994; Mahoney & Roberts, 2007; Saleh et al., 2010; Wahba, 2008b, 2010). Indeed, existing literature can be challenged due to its implied and simplest conjecture that the relationship between social responsibility and institutional investors is a direct relationship. Opposing and mixed findings in prior studies may be traced back to the fact that this relationship is not a direct relationship. Rather, this relationship can be mediated by other contextual variables such as financial performance, a point that has received less attention in literature. Specifically, the main argument in this paper is that better (or worse) financial performance, and rather social responsibility, may, in turn, be the guide for institutional investors when Meiosis make their investment decisions. This is because, “while the emergence of social criteria may influence institutional investment activity, these criteria probably remain subordinate to economic criteria” (Coffey & Fryxell, 1991, p. 439). For instance, although many investors value social responsibility, financial performance is still their main concern (Matterson, 2000). Moreover, not only financial returns are important for ethical investors (Sparkes, 1998), but also institutional investors do not consider social responsibility data unless they are presented in a “financial form” (Teoh & Shiu, 1990).