Title: Socially Responsible Investors and Firm Investment

Authors: Wei Huang (University of Hawaii at Manoa), Ruowei Evelyn Yang (Milliman, Inc.), Zehua Zhang (Hunan University), Ran Zhao (San Diego State University)

Abstract: This paper examines the conditional effect of socially responsible investors (SRI) ownership on firm investments and investment efficiency. Using the signatories of Principal for Responsible Investment to identify the SRI, we approximate the ownership structure complexity by the SRI ownership of the firm. The ownership structure complexity increases the firm’s investment level and reduces investment efficiency. Additional tests show this effect to be causal and robust among different sample selections. The proposed effect is weakened when the underlying firm has a more disciplined investment strategy and integrates the environment and social policies better in the investment process. The negative impact is dampened when the SRI influences the firms’ investment decisions more. Our work suggests the importance of consistent guidelines for responsible investment.