Shifting risk preferences of foreign institutional investors on corporate social responsibility amidst the U.S.-China trade war

Abstract

In this study, we investigate the behavior of foreign institutional investors (FIIs) in China towards corporate social responsibility (CSR) amidst the uncertainties posed by the U.S.-China trade war. Utilizing a difference-in-differences estimation approach, our analysis reveals the shifting risk preferences of FIIs towards firms engaged in international trade and the specific impacts on firms listed on the Unverified List (UVL). Our findings indicate that FIIs subject to common geopolitical risk exhibit improvements in CSR performance, whereas FIIs affected by idiosyncratic geopolitical risk related to UVL show a decline in CSR performance. Furthermore, our research highlights that the shifting risk preferences of FIIs for CSR are significantly more evident among firms without U.S. capital. Collectively, our results suggest that FIIs are sensitive to geopolitical risk, which affects their commitment to CSR.