Legal Origin, Investment Behaviour And The Effect on ESG Performance

In this research we show how institutional investors export their home country's culture and related investing preferences by affecting the managerial behaviour of the firms they invest in. Using data on international institutional holdings of investors from 62 countries into S&P 500 firms from 2004 to 2018 we show that ownership by investors from Scandinavian civil law countries is associated with better ESG performance in investee firms. Using a novel identification strategy based on the mechanics of the balance of payment we show that investors are affecting managerial behaviour instead of simply selecting to invest in more socially responsible firms