How Foreign Institutional Shareholders' Religious Beliefs Affect Corporate Social Performance?

Abstract

In this paper, we employ the unique qualified foreign institutional investors (QFII) scheme in China to investigate whether and how the different religious beliefs in the areas where foreign institutional shareholders from are associated with the corporate social responsibility (CSR) performance of domestic firms. After controlling for other determinants, we find robust evidence that firms with QFII investors from areas with stronger religious beliefs have better CSR performance than those that do not have these beliefs'. This association is more pronounced when a QFII has a shorter holding period, has a relatively large ownership in the firm, or is a more committed investor in China. The above moderating results show that the stock preference may be a channel through which religious QFIIs affect firms’ CSR performance. Our paper contributes to the growing body of literature on CSR and on the effects of investors’ religious beliefs. It also offers useful guidance to listed companies, institutional investors, regulators, and other stakeholders.

Appendix

Variable Definitions

Variable	Definitions
Dependent variables
CSR_Score	The CSR scores are taken from the professional CSR evaluation platform Hexun.com. A higher CSR score indicates that a listed company has better CSR performance
CSR_Grade	The CSR grade from Hexun.com. A higher grade indicates that a company has better CSR performance
CUSTOMER	The component of a firm's CSR that involves customer responsibility, taken from Hexun.com
EMPLOYER	The component of a firm's CSR that involves employer responsibility, taken from Hexun.com
ENVIRONMENT	The component of a firm's CSR that involves environmental responsibility, taken from Hexun.com
SOCIAL	The component of a firm's CSR involving social responsibility, taken from Hexun.com
SHAREHOLDER	The component of a firm's CSR involving shareholder responsibility, taken from Hexun.com
Testing variables
REL	The holdings of religious QFIIs. First, based on the number of religious and atheistic individuals in a region, we determine whether the regions in which the examined QFIIs are located are religious or atheistic. Then, we classify each QFII’s holdings as religious if that investor is from a religious region
ATHEIST	The holdings of atheistic QFIIs. We consider a QFIIs’ holdings to be atheistic if that investor is from an atheistic region
CHRIST	The holdings of Christian QFIIs. If the Christian population of a region is larger than any other religious population, we consider the holdings of the QFIIs from that region to be Christian
OTHER	The holdings of QFIIs who practice other religions. If the largest religious population in the regions where QFIIs are from is not Christian, we consider these regions to be other religious regions and the holdings of the QFIIs from these regions to be the holdings of QFIIs who practice other religions
Further partition variables
LONG_REL/SHORT_REL	Long/short-term holdings of religious QFIIs. We divide the holdings of religious QFIIs into long-term and short-term holdings based on the volatility of their investment horizons. We classify the QFIIs as long-term investors if they hold a stable portfolio. Otherwise, they are classified as short-term investors
LARGE_REL/SMALL_REL	Holdings of religious QFIIs as large/small shareholders. We define the holdings of a religious QFII as a large shareholders’ if the QFII holds more shares proportion than the median of all QFIIs' holding within the industry in the same year. Otherwise, we consider these holdings to be shares hold by religious QFIIs as small shareholders
MCOM_REL/LCOM_REL	The holdings of more/less committed religious QFIIs. We divide the holdings of religious QFIIs into more or less committed holdings based on the number of years they have entered Chinese stock market. We define the QFIIs as more committed investors if the number of years they have entered Chinese stock market more than the average number of years of entering across all the QFIIs. Otherwise, they are defined as less committed investors
Control variables
SOE	Property rights. If the firm is a state-owned enterprise, this variable equals 1; otherwise, this variable equals 0
INST	Domestic institutional holdings. The ratio of the number of shares held by domestic institutions to the total number of shares
MGM	Managerial ownership. The ratio of the number of shares held by management to the total number of shares
FIRST	First shareholder’s ownership. The ratio of the number of shares held by the first shareholder to the total number of shares
SIZE	Firm size. This variable is measured by the natural log of a firm’s total assets
AGE	Listed age. The natural log of the number of years that a firm has been listed plus 1
TOBINQ	Tobin’s Q. The ratio of market capitalization to total assets
TANG	Asset tangibility
ROA	Profitability. The ratio of earnings before interest and tax to total assets
AD	Advertising cost. The ratio of advertising expenses to total assets
CAPX	Capital expenditure ratio. The ratio of capital expenditures to total assets
BDSIZE	Board size. The natural log of the total number of board directors plus 1
INDE	Board independence. The ratio of the number of independent board directors to the total number of board directors
DUAL	Managers’ duality. If the chairman and CEO are the same person, this variable equals 1; otherwise, this variable equals 0
QFII_Country	We use PCA to extract the principal components of the Environmental Performance Index, the Employment Laws Index, the Collective Relations Law Index, GDP per capita, and the ratio of market capitalization to GDP