The changing face of responsible investing (RI) raises an important question concerning whether social responsibility influences the decision making of institutional investors in the “sin” industries. This study addresses this issue by investigating whether and how the implementation of various government initiatives concerning environmental, social, and governance (ESG) issues affect the institutional ownership of casino firms in Macao, the world's gaming capital. Employing structural equation modeling, this study further examines whether and how RI makes financial sense in this special industry. The results show that the implementation of all four ESG-improving government initiatives (including an anticorruption campaign, visa restriction, smoking bans, and responsible gambling) leads to a significant increase in the institutional ownership of casino firms in general, demonstrating the presence and mechanism of RI in the “sin” industries. Such RI is then found to be conducive to a lower equity risk of casino firms in general. The results also illustrate that these intuitional investors are not one homogeneous group. The norm-constrained institutions are the prominent responsible investors and can help strengthen the equity risk management of casino companies whereas the natural arbitrageurs do not undertake any significant role in this regard. The results are robust across various estimation techniques, model specifications and alternative measures of firm risk.

This paper investigates whether banks value the presence of prosocial CEOs when designing loan contracts. Using personal charitable donation behavior to identify prosocial CEOs, we find robust evidence that the presence of prosocial CEOs is negatively related to firms' cost of debt. We address endogeneity concerns by employing a difference-in-differences setting that exploits exogenous CEO turnover events. Moreover, we show that the presence of prosocial CEOs mitigates the conflicts of interest between shareholders and creditors, thereby reduces the agency cost of debt. In addition, we find that the effect of prosocial CEOs also extends to non-price loan contract terms. Finally, we show that the presence of prosocial CEOs has positive implications for firm value and is associated with lower default risk.