The Impact of Ownership Structure on Corporate Social Responsibility: the Moderating Role of Economic Policy Uncertainty

In this study we examine the effect of ownership structure, namely shares of insider, institutional, and state owners on corporate social responsibility. Building on prior research in using an assumption that CSR rating can serve as a proxy for CSR spending, we investigate how different types of owners, having different preferences regarding CSR practices, affect the firm’s strategic decisions about CSR investments. The study further finds that owners’ incentives in CSR practices are altered by economic policy uncertainty. Namely, when EPU rises and investment outcomes become harder to predict, institutional shareholders provide less support to discretionary and uncertain CSR investments, while managers, due to the increased chances of the firm’s expected financial outcomes to be unmet, cease to economize on CSR to reduce the risk of dismissal attempts and respond to pressure from the company’s stakeholders. Along with that, the behaviour of the state, which often explicitly claims the goal of improving environmental and social conditions, is hardly influenced by EPU changes. The sample consists of 2044 listed companies from 9 countries. The data is retrieved from S&P Capital IQ database, Refinitiv Workspace by Thomson Reuters, World Bank, and Baker et al. (2016).