Three essays in corporate stewardship

This dissertation consists of three essays that study how companies act as stewards of a responsible financial system. These three essays focus on three key players in the capital market respectively - institutional investors (first paper), public companies (second paper), and audit partnerships (third paper). The first paper starts with the drivers of capital in the financial system - institutional investors - to investigate why and when investment companies delist themselves from United Nations-supported Principles for Responsible Investment (PRI) but continue to operate. I find that companies are likely to delist earlier when their financial and sustainability performance deteriorates after joining PRI, especially after they are mandated to provide standardized reports on sustainable investment practices. Based on these standardized reports, I further document that companies are more likely to delist when they have weaker management control systems for sustainable investment. Collectively, the results suggest that only companies with internal and external business conditions to pursue both financial and sustainability performance can afford to maintain a public sustainability commitment in the long term. The second paper focuses on the users of capital in the financial system - public companies - to analyse the incentives and real effects of creating a separate corporate social responsibility (CSR) committee on corporate boards. We find that a firm's decision to establish a CSR committee is shaped by the cost-benefit trade-offs associated with country and corporate characteristics. On average, CSR committees effectively reduce firms' CSR risk in the long run, however at the cost of operational performance such as profitability and capital investment. The evidence is consistent with firms abandoning CSR-controversial projects under the heightened scrutiny of CSR committees. The third paper turns to the safeguards of capital in the financial system - audit partnerships - to examine how audit partners' performance management and compensation systems evolved over the past decade under increased public scrutiny on audit quality. Based on internal policies and records collected from the eight largest audit firms in the Netherlands from 2007 to 2017, we find that audit partners' performance evaluation and incentive structures have substantially increased the focus on audit quality. This evolution strengthens the alignment of goals amongst audit firms, audit partners, capital market and society.