Corporate Environmental Penalty,Charitable Donations And Institutional Investors’ Shareholding

In governance practice,corporate CSR activities are often contradictory.“Bad”companies sometimes do “good” things,and polluting companies are trying to decrease their“dirty” with donations.For example,Zijin Mining,which has been caught in the“environmental protection gate” for many times,has also funded poverty alleviation and disaster relief for many times.The donation level of listed companies belonging to key polluters is obviously higher than that of non-key polluters.Such donations have been questioned as utilitarian donations to cover up corporate pollution.Therefore,it is urgent to discourage enterprises from such utilitarian donation ideas,restrain enterprises from polluting behaviors,and guide enterprises to consciously abide by social norms and fulfill social responsibilities.However,the governance of polluting enterprises in China is still mainly dependent on the formal system of laws and regulations,and the power of market governance is still weak.At the same time,institutional investors have been playing an increasingly prominent role in corporate governance in recent years,increasing their influence on listed companies and gradually becoming an important external supervision mechanism.Institutional investors have become increasingly dominant in equity investment,with the proportion of shares held by institutional investors rising significantly from around 15% a decade ago to the current level of20% to 25%.Corporate ESG activities also have an important impact on institutional investors’ behavior,and the driving role of immaterial motives such as social norms has attracted attention.However,there is a lack of research on how institutional investors will react to contradictory CSR and ESG behaviors,especially in environmental(E)and social(S)aspects(such as the phenomenon of high donation by polluting enterprises),and what role social norms play.Therefore,it is of great theoretical and practical significance to explore the important role of social norms in the governance effect of institutional investors and the effective supervision of corporate behavior,and to develop market forces involved in environmental governance.Based on the manufacturing in Shanghai and Shenzhen stock market from 2010 to 2020 in China a-share listed companies as research samples,used multiple regression analysis,empirical research methods,such as double difference method,with the aid of social norms theory framework,this paper mainly discusses enterprise environmental penalties and the mutual influence of charity behavior of institutional investors and the market of the enterprise attention whether this effect.Firstly,it discusses how corporate environmental penalty affects the shareholding behavior of institutional investors.Secondly,we examine the moderating effect of charitable giving on the relationship between corporate environmental penalties and institutional investor ownership,and whether market attention expands or inhibits the moderating effect of charitable giving.Finally,the mediating effect of institutional investor ownership on the relationship between corporate environmental penalty and equity capital cost is analyzed.The main results of this paper are as follows.First,institutional investors reduce their holdings to “punish” environmentally penalized companies.Environment punish enterprises destroyed the social norms of protecting the environment,institutional investment is affected by the members of the social values and beliefs,will abide by social norms guidelines,action in social acceptable way,institutional investors under the influence of economic incentives and biased motivation,there is punishment behavior of enterprise,characterized by “voting with their feet” to reduce its stake.Second,charitable giving increases the penalties imposed by institutional investors on companies with environmental penalties.Corporate attempts to ease sanctions on institutional investors through charitable donations have failed.In the view of institutional investors,enterprises’ behavior of both pollution and donation is not a true reflection of the pro-social will of enterprises,but a “smoke cover” to cover up pollution behavior and business difficulties.Therefore,the higher the charitable donation,the lower the shareholding ratio of institutional investors to enterprises with environmental penalties.Third,market attention further amplifies the moderating effect of charitable giving.Higher market attention make enterprise maintenance behavior and damage behavior of social norms are more likely to be the public attention and perceived,namely market attention will further enlarge enterprise pollution and the contradiction of donation behavior,further deepening the mind in institutional investment enterprise in an attempt to use of charitable giving good behavior,such as covering environmental pollution and other bad behavior of the negative impression,The high level of concern has prompted institutional investors to further intensify their punishment of environmental penalized enterprises that make charitable donations.Fourthly,corporate environmental penalty increases the cost of equity capital by reducing the shareholding of institutional investors,which is an effective way for corporate environmental penalty to affect the cost of equity capital.Based on the above conclusions,this paper has the following implications for enterprises,institutional investors and government regulatory authorities: Enterprise level,enterprises should realize the institutional investor behavior has a positive influence on corporate value,corporate social responsibility performance is an important factor in institutional investors decision-making,utilitarian punishment donation will not only useless but counterproductive increase in institutional investors,inspired by the enterprise of “curing” donation at the same time strengthen enterprise environment management,improve enterprise environmental performance.At the institutional investor level,institutional investors should fully realize that good social performance can bring long-term profits to enterprises,and rationally view utilitarian corporate social responsibility behaviors such as charitable donation.At the level of government regulators,we should give full play to the supervisory and governance role of third parties in the capital market,such as institutional investors,and the restraint role of informal institutions,such as social norms.The main innovations of this paper are as follows: First,by investigating the reaction of institutional investors to the phenomenon of “cleaning up pollution” by environmental penalized enterprises through donation,the research on the market impact of corporate social responsibility deviation is expanded and enriched.Secondly,it first investigates how the reaction of institutional investors to the phenomenon of CSR deviation from environmental penalty is affected by market attention.Thirdly,it takes the lead to provide a theoretical explanation framework for institutional investors’ reaction when CSR deviates from the perspective of social norm conflict and compensation.