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Socially responsible investing and the performance of Eurozone corporate bond portfolios

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  • Patrícia Pereira
  • Maria Céu Cortez
  • Florinda Silva

Abstract

This paper investigates the performance of socially screened bond portfolios of 189 Eurozone companies between 2003 and 2016. Bond portfolios are formed on the basis of an aggregate measure of corporate social responsibility (CSR) and on specific dimensions of CSR, namely, Environment, Social, and Governance dimensions. Our results show that the performance of highly socially rated bonds is not significantly different from that of low‐rated bonds. We also observe that in an earlier stage, portfolios of high‐rated bonds outperformed portfolios of low‐rated bonds. Yet over time, this outperformance disappears. These results suggest that the errors‐in‐expectations and shunned‐security hypotheses are not only useful in explaining the performance of socially responsible equity portfolios but that they are also useful in explaining the performance of socially screened bond portfolios over time. Overall, our results indicate that investors can form bond portfolios based on sustainability criteria without compromising financial performance.

Suggested Citation

  • Patrícia Pereira & Maria Céu Cortez & Florinda Silva, 2019. "Socially responsible investing and the performance of Eurozone corporate bond portfolios," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(6), pages 1407-1422, November.
    • Handle: RePEc:wly:corsem:v:26:y:2019:i:6:p:1407-1422
    DOI: 10.1002/csr.1756
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    5. Andre Höck & Tobias Bauckloh & Maurice Dumrose & Christian Klein, 2023. "ESG criteria and the credit risk of corporate bond portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 24(7), pages 572-580, December.
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    7. Guillermo Badía & Maria C. Cortez & Luis Ferruz, 2020. "Socially responsible investing worldwide: Do markets value corporate social responsibility?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(6), pages 2751-2764, November.
    8. Olofsson, Petter & Råholm, Anna & Uddin, Gazi Salah & Troster, Victor & Kang, Sang Hoon, 2021. "Ethical and unethical investments under extreme market conditions," International Review of Financial Analysis, Elsevier, vol. 78(C).
    9. 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.

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