Exploring the Moderating Effect of Financial Performance on the Relationship between Corporate Environmental Responsibility and Institutional Investors: Some Egyptian Evidence

Abstract

Much of the existing literature has argued that those firms that invest in environmental initiatives attract more institutional investors. A noticeable problem with these studies is the assumption that the relationship between institutional investors and corporate environmental responsibility is a monotonic relationship that does not vary with firm financial performance. Initial findings of this study demonstrated that corporate environmental responsibility exerted a positive and significant coefficient on institutional ownership. However, when an interaction term between environmental responsibility and financial performance was included, the results verified that corporate environmental responsibility has a neutral impact on the preferences of institutional investors. Moreover, by classifying firms into two sub-groups, according to their financial performance, environmental responsibility was found to have a positive and significant impact on institutional ownership only when financial performance is high. Copyright © 2008 John Wiley & Sons, Ltd and ERP Environment.