Shareholder Politics: The Influence of Investors’ Political Affiliations on Corporate Social Responsibility

Abstract

Many institutional investors are active political donors, but the impact that their political partisanship has on corporate practices and policies has mostly eluded academic examination. As political donations can reflect investors’ views and values, we theorize that the nature of investors’ political donations can shape managerial decision-making in important ways. We test this idea by examining changes in corporate social responsibility (CSR) activities, an area where managers have a high degree of discretion over how they account for investors’ views and values. Our theory introduces two focal constructs: political position, which captures the average political affiliation of actors within a group, and political dispersion, which captures the variance in political positions across group members. After hypothesizing a positive relationship between liberal-positioned investors and a firm's CSR activities, we argue that political dispersion among investors mitigates this positive effect. To account for between-group dispersion, we also suggest that liberal-positioned investors have a stronger positive effect on CSR in firms with more conservative managers. Our analysis of 19 years of shareholder political donations data for 2,062 U.S.-based firms supports our theory. This paper lays new groundwork for research on shareholder politics in management, and contributes to research on investor influence, political ideology, and CSR.