Institutional shareholders’ political values significantly influences corporate environmental disclosure and performance.
Firms with Republican-oriented institutional shareholders are less likely to issue environmental reports.
Institutional shareholders’ Republican-oriented political values are negatively associated with environmental performance.
Institutional shareholders’ Republican-oriented political values are negatively associated with green innovations.
In this study, we investigate whether and to what extent institutional shareholders' political values influence their investees' environmental disclosure and performance. Using employees' political donation data, we construct institutional investors' political ideology score, which higher (lower) value represents a more Republican- (Democratic)-leaning culture. We find that firms led by institutional shareholders with a more Republican-oriented political ideology are less likely to issue environmental reports. Such a negative effect is more pronounced for firms with institutional shareholders with long-term horizons, with high corporate Republican ideology scores, and without an environmental committee. We further find that institutional shareholders' Republican-oriented political values are negatively associated with their investee firms' environmental performance and green innovations. Overall, our results indicate that institutional shareholders' internal political polarization significantly influences corporate environmental disclosure policies.
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Journal of Corporate Finance
Kim, I., Ryou, J.W. and Yang, R., 2020. The color of shareholders' money: Institutional shareholders' political values and corporate environmental disclosure. Journal of Corporate Finance, 64, p.101704. https://doi.org/10.1016/j.jcorpfin.2020.101704