Institutional Investor Horizon and <scp>CSR</scp> Peer Imitation

ABSTRACT Do institutional investors shape how firms respond to competitors' CSR commitments? We find that despite negative initial market reactions, peer firms with high long‐term investor holdings imitate voting firms' adoption of close‐call CSR proposals by improving their CSR performance in the year following proposal passage. Such imitation positively impacts peer firms' value by reducing cash flow risk, particularly for those with a relatively higher long‐term institutional ownership. Smaller, younger, financially weaker, and firms in more competitive industries benefit more, which can be explained by the rivalry‐based theory of imitation.