Investor Heterogeneity, Sustainable Board Governance, and Corporate Social Responsibility Performance: Empirical Evidence From Europe

This study applies an agency-theoretical lens to examine how investor heterogeneity, specifically institutional, foreign, and domestic ownership, influences corporate social responsibility (CSR) performance. Drawing on extensions of classical agency theory that account for heterogeneous shareholder preferences and principal-principal conflicts, I analyze 11,652 firm-year observations of EU-headquartered companies over the period 2014–2023. The findings indicate that institutional and foreign ownership are positively associated with CSR performance, whereas domestic ownership shows a negative relationship. These results are consistent with institutional investors seeking a balanced risk–return trade-off through CSR engagement and foreign investors using CSR to mitigate information asymmetries linked to geographic distance. By contrast, domestic investors, often characterized as less sophisticated and less independent, appear to incentivize managerial short-termism that hinders long-term CSR commitments. Importantly, the analysis identifies board gender diversity (BGD) as a complementary governance mechanism that moderates the positive effect of institutional and foreign ownership on CSR performance, suggesting that diverse boards act as a catalyst for investor-driven CSR engagement. This study contributes to the literature by (1) providing evidence on the distinct role of foreign investors in shaping CSR outcomes within an advanced regulatory context, (2) demonstrating the complementary interplay between investor monitoring and board governance in promoting CSR, and (3) offering actionable insights for corporate managers, investors, and policymakers seeking to strengthen sustainable corporate behavior through governance design and investor engagement strategies.