Do foreign institutions avoid investing in poorly CSR-performing firms?

We examine the impact of corporate social responsibility (CSR) on the investment decisions of foreign institutional investors. Using institutional investor holdings data domiciled in emerging markets, we find a positive and economically significant impact of firm CSR performance on foreign institutional ownership. We further document that independent foreign investors are affected by firm CSR performance, while gray foreign investors do not consider firm CSR performance when forming portfolios. Cross-sectional tests indicate a more potent positive impact of CSR on foreign institutional investor holdings for firms domiciled in countries with stronger disclosure and better governance. Moreover, investors domiciled in countries with common law consider firm CSR performance when forming portfolios. The results are robust to exogenous shocks, instrumental variable tests, and alternate specifications.