IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v49y2017i3d10.1007_s11156-016-0605-x.html
   My bibliography  Save this article

Is corporate social responsibility sufficient enough to explain the investment by socially responsible funds?

Author

Listed:
  • Onur Kemal Tosun

    (University of Warwick)

Abstract

I propose an explanation for investment decisions by socially responsible investment funds (SRI) on the firms with higher corporate social responsibility (CSR). Different from the previous literature, I use a unique and comprehensive measure that considers both firm CSR ratings and fund CSR perception. I show SRI mutual funds increase their ownership about 15 % for one unit increase in the firm CSR score when those funds are highly sensitive to CSR. This finding is more pronounced for employee relations and society areas of CSR. The results also hold for a broader range of mutual funds. While industry concentration does not have influence on the fund investment, SRI funds particularly choose socially responsible firms operating in construction, transportation, personal services, and financial sector. I show the funds with CSR sensitivity underperform the market in general and fail to improve their portfolio performance after they invest in the firms with high CSR.

Suggested Citation

  • Onur Kemal Tosun, 2017. "Is corporate social responsibility sufficient enough to explain the investment by socially responsible funds?," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 697-726, October.
    • Handle: RePEc:kap:rqfnac:v:49:y:2017:i:3:d:10.1007_s11156-016-0605-x
    DOI: 10.1007/s11156-016-0605-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11156-016-0605-x
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11156-016-0605-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thomas Berry & Joan Junkus, 2013. "Socially Responsible Investing: An Investor Perspective," Journal of Business Ethics, Springer, vol. 112(4), pages 707-720, February.
    2. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    3. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    4. Roland Bénabou & Jean Tirole, 2010. "Individual and Corporate Social Responsibility," Economica, London School of Economics and Political Science, vol. 77(305), pages 1-19, January.
    5. Bauer, Rob & Koedijk, Kees & Otten, Roger, 2005. "International evidence on ethical mutual fund performance and investment style," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1751-1767, July.
    6. Hong, Harrison & Kostovetsky, Leonard, 2012. "Red and blue investing: Values and finance," Journal of Financial Economics, Elsevier, vol. 103(1), pages 1-19.
    7. Jeroen Derwall & Kees Koedijk, 2009. "Socially Responsible Fixed-Income Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1-2), pages 210-229.
    8. Gerard Hoberg & Gordon Phillips, 2010. "Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3773-3811, October.
    9. Michael Schröder, 2007. "Is there a Difference? The Performance Characteristics of SRI Equity Indices," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 331-348, January.
    10. Baron, David P., 2008. "Managerial contracting and corporate social responsibility," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 268-288, February.
    11. Di Giuli, Alberta & Kostovetsky, Leonard, 2014. "Are red or blue companies more likely to go green? Politics and corporate social responsibility," Journal of Financial Economics, Elsevier, vol. 111(1), pages 158-180.
    12. Edward Nelling & Elizabeth Webb, 2009. "Corporate social responsibility and financial performance: the “virtuous circle” revisited," Review of Quantitative Finance and Accounting, Springer, vol. 32(2), pages 197-209, February.
    13. Linda Yu, 2014. "Performance Of Socially Responsible Mutual Funds," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 8(3), pages 9-17.
    14. Buzby, Stephen L. & Falk, Haim, 1978. "A survey of the interest in social responsibility information by mutual funds," Accounting, Organizations and Society, Elsevier, vol. 3(3-4), pages 191-201, October.
    15. Greg Filbeck & Raymond Gorman & Xin Zhao, 2013. "Are the best of the best better than the rest? The effect of multiple rankings on company value," Review of Quantitative Finance and Accounting, Springer, vol. 41(4), pages 695-722, November.
    16. Karen Benson & Timothy Brailsford & Jacquelyn Humphrey, 2006. "Do Socially Responsible Fund Managers Really Invest Differently?," Journal of Business Ethics, Springer, vol. 65(4), pages 337-357, June.
    17. Lesmond, David A & Ogden, Joseph P & Trzcinka, Charles A, 1999. "A New Estimate of Transaction Costs," The Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1113-1141.
    18. Huimin Chung & Han-Hsing Lee & Pei-Chun Tsai, 2012. "Are Green Fund Investors Really Socially Responsible?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 15(04), pages 1-25.
    19. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dimitrios Koutmos & Bochen Wu & Qi Zhang, 2020. "In search of winning mutual funds in the Chinese stock market," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 589-616, February.
    2. Kumari Juddoo & Issam Malki & Sudha Mathew & Sheeja Sivaprasad, 2023. "An impact investment strategy," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 177-211, July.
    3. Das, Nandita & Chatterje, Swarn & Ruf, Bernadette & Sunder, Aman, 2018. "ESG Ratings and the Performance of Socially Responsible Mutual Funds: A Panel Study," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(1), pages 49-57.
    4. Orlando Gomes, 2020. "Optimal growth under socially responsible investment: a dynamic theoretical model of the trade-off between financial gains and emotional rewards," International Journal of Corporate Social Responsibility, Springer, vol. 5(1), pages 1-17, December.
    5. Kara Nel & Nadia Mans-Kemp & Pierre D. Erasmus, 2023. "Sustainable Thematic Investing: Identifying Opportunities Based on an Analysis of Stewardship Reports," Sustainability, MDPI, vol. 15(10), pages 1-20, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    2. Krüger, Philipp, 2015. "Corporate goodness and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 115(2), pages 304-329.
    3. Hans B. Christensen & Luzi Hail & Christian Leuz, 2021. "Mandatory CSR and sustainability reporting: economic analysis and literature review," Review of Accounting Studies, Springer, vol. 26(3), pages 1176-1248, September.
    4. Maria Cristina Rossi & Dario Sansone & Costanza Torricelli & Arthur van Soest, 2018. "Household Preferences for Socially Responsible Investments," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 18021, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    5. Maretno A. Harjoto & Andreas G. F. Hoepner & Marcus A. Nilsson, 2022. "Bondholders’ returns and stakeholders’ interests," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1271-1301, November.
    6. Rossi, Mariacristina & Sansone, Dario & van Soest, Arthur & Torricelli, Costanza, 2019. "Household preferences for socially responsible investments," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 107-120.
    7. Li, Chengcheng & Wang, Xiaoqiong, 2022. "Local peer effects of corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 73(C).
    8. Fernando García & Jairo González-Bueno & Javier Oliver & Nicola Riley, 2019. "Selecting Socially Responsible Portfolios: A Fuzzy Multicriteria Approach," Sustainability, MDPI, vol. 11(9), pages 1-14, April.
    9. Maike van Dijk-de Groot & Andre H.J. Nijhof, 2015. "Socially Responsible Investment Funds: a review of research priorities and strategic options," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(3), pages 178-204, July.
    10. Henke, Hans-Martin, 2016. "The effect of social screening on bond mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 67(C), pages 69-84.
    11. Incheol Kim & Hong Wan & Bin Wang & Tina Yang, 2019. "Institutional Investors and Corporate Environmental, Social, and Governance Policies: Evidence from Toxics Release Data," Management Science, INFORMS, vol. 65(10), pages 4901-4926, October.
    12. Tang, Dragon Yongjun & Zhang, Yupu, 2020. "Do shareholders benefit from green bonds?," Journal of Corporate Finance, Elsevier, vol. 61(C).
    13. Shackleton, Mark & Yan, Jiali & Yao, Yaqiong, 2022. "What drives a firm's ES performance? Evidence from stock returns," Journal of Banking & Finance, Elsevier, vol. 136(C).
    14. Riikka Sievänen & Hannu Rita & Bert Scholtens, 2017. "European Pension Funds and Sustainable Development: Trade‐Offs between Finance and Responsibility," Business Strategy and the Environment, Wiley Blackwell, vol. 26(7), pages 912-926, November.
    15. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.
    16. Cornett, Marcia Millon & Erhemjamts, Otgontsetseg & Tehranian, Hassan, 2016. "Greed or good deeds: An examination of the relation between corporate social responsibility and the financial performance of U.S. commercial banks around the financial crisis," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 137-159.
    17. Tamas Barko & Martijn Cremers & Luc Renneboog, 2022. "Shareholder Engagement on Environmental, Social, and Governance Performance," Journal of Business Ethics, Springer, vol. 180(2), pages 777-812, October.
    18. Liu, Xianda & Hou, Wenxuan & Main, Brian G.M., 2022. "Anti-market sentiment and corporate social responsibility: Evidence from anti-Jewish pogroms," Journal of Corporate Finance, Elsevier, vol. 76(C).
    19. Nofsinger, John & Varma, Abhishek, 2014. "Socially responsible funds and market crises," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 180-193.
    20. Łukasz Dopierała & Magdalena Mosionek-Schweda & Daria Ilczuk, 2020. "Does the Asset Allocation Policy Affect the Performance of Climate-Themed Funds? Empirical Evidence from the Scandinavian Mutual Funds Market," Sustainability, MDPI, vol. 12(2), pages 1-23, January.

    More about this item

    Keywords

    Socially responsible investment; Corporate social responsibility; Employee relations; Dual measure; Portfolio performance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:49:y:2017:i:3:d:10.1007_s11156-016-0605-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.