THE EFFECTS OF LARGE INSTITUTIONAL OWNERSHIP AND OUTSIDE DIRECTORS ON CORPORATE SOCIAL PERFORMANCE:

Abstract

Firms corporate social performance has gained enormous attention from corporate governance scholars. However, empirical researches have shown a lot of contradictory results. This paper analyses the impact of large institutional ownership and outside directors on firms CSP along with the moderating effect of the owner-CEO power in terms of ownership. The study attempts to explore the effects of large institutional ownership on CSP by arguing that the large extent of shareholdings indicates the abilities and incentives of institutional investors to encourage firms to invest more in CSP commitments. In addition, the role of outside directors on firms CSP is also examined by integrating agency theory and dependency theory. As the monitor of shareholders and resources provider, outside directors encourage firm to invest more in CSP. I also proposed that the influence of both governance mechanisms will be mitigate by a powerful CEO. The hypotheses are tested using a sample which consists of 194 firms in Korea. The empirical results indicated that the first two direct effects of institutional ownership and outside directors are supported. Furthermore, the results also indicated the effects of CEO power on the relationship of outside directors and firms CSP.