Stock exchange initiatives, financial system development, and corporate social performance

Stock exchanges are key gatekeepers to equity finance, and have increasingly sought, via various mechanisms, to improve the social performance of listed companies. As yet, we have no evidence on the effects of these initiatives on firm behavior, and thus in this paper we explore the effects of stock exchange efforts on corporate social performance (CSP) in the context of a sample of over 3,000 companies drawn from 45 countries in the period 2007-2014. Drawing on institutional theory, we theorize that the influence of stock exchanges on CSP is affected by the relative development of financial markets vis-à-vis financial institutions and by firms’ financial and market characteristics. Our evidence suggests that stock exchanges exert significant influence on CSP, and that this influence varies by type of initiative and by domain of CSP, with the largest effects being identified for improvements in corporate governance. Moreover, consistent with our theoretical development, the influence of stock-exchange initiatives is moderated by their relative development compared to financial institutions and by firm dependence on stock financing.