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The Role of Mutual Funds in Corporate Social Responsibility

• Original Paper
• Published: 16 September 2020
• Volume 174 , pages 715–737, ( 2021 )

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• Zhichuan Frank Li 1 ,
• Saurin Patel 1 &
• Srikanth Ramani 2  

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This paper examines the role of mutual funds in corporate social responsibility (CSR). Using a fund-level, holdings-based CSR score, we find that CSR-friendly mutual funds improve firms’ CSR standings. This effect is more pronounced for firms with higher mutual fund ownership and stronger corporate governance. We further show that while CSR-friendly mutual funds have influence on almost all CSR categories, they focus on increasing CSR strengths rather than reducing CSR concerns. We also discover that CSR-friendly funds are more likely to vote in favor of CSR proposals, and that firms owned by CSR-friendly funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that actively managed mutual funds, which were previously thought to be indifferent (or even detrimental) to social and ethical issues, play a significant role in corporate social outcomes of the firms they invest in.

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

Does social responsibility begin at home? The relation between firms’ pension policies and corporate social responsibility (CSR) activities

CSR Performance and the Value of Cash Holdings: International Evidence

GSI Alliance, “2018 Global Sustainable Investment Review,” accessed March 10, 2020, ( https://www.gsi-alliance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf ).

For example, Fidelity Investments introduced two new index funds in 2017 to provide investors with a wider array of options for their ESG investments. Fidelity, “Fidelity Launches First Two Sustainability-Focused Index Funds,” accessed on August 12, 2018, ( https://www.fidelity.com/about-fidelity/institutional-investment-management/first-two-sustainability-focused-index-funds ).

Financial Times, “Asset managers accused of climate change hypocrisy,” accessed on November 2, 2018, ( https://www.ft.com/content/1833bc1e-800d-11e6-8e50-8ec15fb462f4 ).

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Existing literature argues that institutional investors’ long investment horizon allows them to focus on the long-term benefits of CSR (Starks et al. 2017 ; Gibson and Kruger 2018; Gloßner 2019 ; Kim et al. 2019 ; Gibson et al. 2020 ; Ilhan et al. 2020 ).

Available at https://www.unpri.org/signatories/reporting-for-signatories .

Additionally, unlike index funds, actively managed mutual funds focus on active stock selection and have the ability to influence CSR policies by threat of ‘exit’ or ‘voting with their feet’ (Parrino et al. 2013).

We also employ an alternative measure of mutual fund social preference following Hong and Kostovetsky ( 2012 ) who find that Democratic-leaning managers are more likely to hold high-CSR firms. Our results remain robust in Table 9 .

In untabulated results, we find similar results using exogenous fund mergers within or across fund families. Note that while mergers of mutual funds are exogenous (McLemore 2018), retaining or dropping stocks after the mergers can be endogenous for reasons related to CSR. We do find CSR-friendly mutual funds gradually drop low-CSR firms after mergers.

It is, however, well studied that institutional owners can provide better corporate governance and ultimately improve firm financial performance (Del Guercio and Hawkins, 1999; Hartzell and Starks, 2003; McCahery et al. 2016 ).

Many studies also explore the link between responsible investing and fund performance, including Bauer et al. ( 2007 ), Climent and Soriano ( 2011 ), Barnett and Salomon ( 2012 ), Hong and Kacperczyk ( 2009 ), Borgers et al. ( 2015 ) and Ibikunle and Steffen ( 2017 ). Morgan et al. ( 2011 ) find that mutual funds vote less in favor of social proposals, but it is not the focus of their paper.

Hartzmark and Sussman ( 2019 ) provide strong causal link between fund flows and high sustainability rating. They also show mutual funds with low sustainability scores did not face any significant outflows before Morningstar published their sustainability ratings in March 2016. Thus, we do not expect fund flows to be weak for mutual funds with low CSR scores in our sample, which ends in 2013. Nonetheless, this could be a reason that mutual funds would want to improve a firm’s CSR.

KLD also evaluates firms on corporate governance. As the focus of this paper is strictly on the role of mutual funds on CSR, the study follows the literature to exclude the corporate governance measure when calculating the CSR score.

Following Matvos and Ostrovsky ( 2010 ), we match the ISS data with the EDGAR data based on fund and family name and then match the voting data to Morningstar through fund tickers.

In robustness checks, the raw, unscaled CSR score generates qualitatively similar results.

The data show that the Annual Fund CSR of some funds vary considerably from one year to the next. To smooth out the noise, we construct Fund CSR as the three-year average of the Annual Fund CSR. However, all the results remain qualitatively similar if Annual Fund CSR is used.

We include Industry CSR in all our main specifications to control for industry-specific CSR trends over time.

To control for the overall effect of institutional holders, we include institutional ownership (excluding all mutual fund ownership) in our main regressions. The results remain robust as shown in Appendix Table 2 .

We use firm fixed effects to control for unobservable time-invariant firm characteristics and to study within-firm variations of CSR scores. We also try industry fixed effects, in Appendix Table 3 , which allow us to examine the cross-sectional variations and remove potential measurement errors. The results suggest that mutual fund CSR can explain the cross-sectional variations in firm CSR.

We thank Harrison Hong for sharing the data on his website.

Note that investment horizon and CSR friendliness are two related but distinct preferences. First, although funds with higher Fund CSR score have longer investment horizons, the difference in the investment horizon is 1.15 years, quite small in economical terms, between the CSR-friendly and CSR-unfriendly funds. The correlation between Fund CSR and Investment horizon (as measured by Duration) is only 0.15. Second, Table 10 shows that the interaction term of CSR-unfriendly ownership and longer investment horizons has a negative effect on a firm’s future CSR. That is, CSR-unfriendly funds with a long-term view are more likely to decrease CSR. Finally, all our results are robust after controlling for investment horizon.

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Li, Z.F., Patel, S. & Ramani, S. The Role of Mutual Funds in Corporate Social Responsibility. J Bus Ethics 174 , 715–737 (2021). https://doi.org/10.1007/s10551-020-04618-x

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Received : 06 April 2019

Accepted : 05 September 2020

Published : 16 September 2020

Issue Date : December 2021

DOI : https://doi.org/10.1007/s10551-020-04618-x

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p-ISSN: 2162-9374    e-ISSN: 2162-8416

2016;  6(4): 113-135

doi:10.5923/j.mm.20160604.03

Mutual Funds in India: Evolution, Significance and Need for Study in Reference to ELSS Mutual Funds

Seema Sharma , M. A. Khan , R. K. Srivastava

Department of Finance, Sydenham Institute of Management Studies, Research & Entrepreneurship Education (SIMSREE), Mumbai, India (University of Mumbai)

Copyright © 2016 Scientific & Academic Publishing. All Rights Reserved.

A large number of investment avenues are available for investors in India. Risk and return are the major issues which an investor faces to maximize his returns while choosing investing avenues depending on his objectives, preferences and needs. The advent of mutual funds has helped in garnering the investible funds of this category of investors in a significant way. Mutual fund is one of the most viable investment options for the small investor as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Mutual funds offer different schemes for different investment objectives. ELSS funds are one of the best avenues to save tax; also the investor gets the potential upside of equity exposure. Indian investors have little information to take prudent investment decisions. Such information drought is the breeding ground for misguidance, leading the investor to opt for a particular scheme without an in-depth analysis, resulting in dissatisfaction over fund performance. The present paper aims to identify and address this basic issue in detail, covering the history of mutual fund evolution, their significance for the small investor and the need for study of mutual funds and the ELSS funds. The study aims to benefit the tax-burdened small investor who is barely financially literate and has little time (or energy) to research before buying a fund.

Keywords: Mutual fund, ELSS, Investor, Financial market, Risk, Return, Performance

Cite this paper: Seema Sharma, M. A. Khan, R. K. Srivastava, Mutual Funds in India: Evolution, Significance and Need for Study in Reference to ELSS Mutual Funds, Management , Vol. 6 No. 4, 2016, pp. 113-135. doi: 10.5923/j.mm.20160604.03.

Article Outline

1. introduction, 1.1. indian financial system, 2. mutual funds, 3. types of mutual funds, 3.1. types of mutual funds by structure, 3.1.1. close ended fund, 3.1.2. open ended fund, 3.1.3. interval funds, 3.2. types of mutual funds by nature, 3.2.1. equity mutual funds, 3.2.2. debt mutual funds, 3.2.3. balanced funds, 3.3. types of mutual funds by investment objective, 3.3.1. growth funds, 3.3.2. income funds, 3.3.3. balanced funds, 3.3.4. index funds, 3.3.5. money market or liquid funds, 3.3.6. gilt funds, 4. structure of mutual funds, 4.1. sponsor, 4.2. mutual funds as trusts, 4.3. asset management company, 4.4. custodian, 4.5. schemes, 4.6. investment criteria, 4.7. limitation of fees and expenses, 5. role of sebi, 6. equity linked savings schemes (elss) mutual funds, 6.1. the systematic investment plan (sip) approach to elss mutual funds, 7. international scenario of mutual funds, 8. indian scenario of mutual funds, 8.1. first phase - 1964-1987, 8.2. second phase - 1987-1993 (entry of public sector funds), 8.3. third phase - 1993-2003 (entry of private sector funds), 8.4. fourth phase - since february 2003, 9. association of mutual funds in india, 10. statement of the problem, 11. significance of the study, 12. need for the study, 13. proposed theoretical model for elss mutual funds risk-returns, 14. managerial implications, 15. conclusions.

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Cars travel past a display showing Shanghai and Shenzhen stock indexes near the Shanghai Tower and other skyscrapers at the Lujiazui financial district in Shanghai, China February 5, 2024. REUTERS/Xihao Jiang/File Photo

A look at the day ahead in U.S. and global markets from Mike Dolan

As Wall Street stalls its recent rally, world markets switched attention to China's on-off recovery and whether the Bank of England's latest policy decision on Thursday may signal that it is ready to ease credit as early as next month.

U.S. stock futures as well as Asian and European equities have turned more subdued generally. But Chinese stocks clearly outperformed overnight after news the country's exports and imports returned to growth in April - stirring hopes that government stimulus measures there may be starting to kick in.

Shipments from China grew 1.5% in the year through last month, while imports for April increased by 8.4%, beating an expected 4.8% rise. Both imports and exports reversed March declines.

The trade numbers add a spur to the global demand outlook at the margin at a tricky time for central banks - nudging oil prices higher again on Thursday alongside data showing a surprise draw on U.S. stockpiles.

But they also likely mask significant upheaval in bilateral trade flows. Reuters' calculations based on official data from the German statistics office, for example, showed the United States overtook China as Germany's most important trading partner in the first quarter of this year.

Adding to the Chinese market cheer on Thursday, however, was some loosening of property market curbs. China's eastern metropolis of Hangzhou said it would lift all home purchase restrictions to shore up its real estate market, raising the prospect of other cities following suit.

The latest development also comes against an intensified tech sector standoff between Washington and Beijing.

U.S. Commerce Secretary Gina Raimondo said on Wednesday a Chinese invasion of Taiwan and seizure of chips producer TSMC would be "absolutely devastating" to the American economy. Declining to comment on how or whether it would happen, she told a U.S. House hearing that the United States buys 92% of its leading edge chips from TSMC.

Intel, meanwhile, fell more than 2% on Wednesday after warning of a sales hit from the U.S. revoking some of the chipmaker's export licences for China.

It has been a bumpy week within the tech sector more generally. Arm Holdings dropped 10% in out-of-hours trade overnight after a full-year revenue forecast missed expectations.

Wall St stock futures were off slightly ahead of Thursday's open, Treasury yields were a touch higher and the dollar was firmer too.

Wednesday's 10-year Treasury auction was a little tepid and bond investors now await $25 billion of new 30-year bonds later on Thursday.

Fed officials continue to sound cautious - though downplaying any need to raise interest rates again. Boston Fed President Susan Collins said the current setting of monetary policy would slow the economy in the way she said was necessary to get inflation back to the Fed's 2% target.

Back in Europe, the Bank of England decision is in focus and sterling is on the backfoot amid speculation that steady rates today may be accompanied by signals that the Bank is prepared to ease alongside the European Central Bank as soon as next month.

And in deals, Spanish bank Sabadell jumped 6% after rival BBVA presented a 12.23 billion euro takeover bid directly to shareholders, even though the former's board already rejected the proposal. BBVA shares were down 5.4%.

Key diary items that may provide direction to U.S. markets later on Thursday:

* Bank of England policy decision, meeting minutes, monetary policy report and press briefing; Central Bank of Mexico releases Monetary policy statement

* US weekly jobless claims, Mexico April inflation

* San Francisco Federal Reserve Bank President Mary Daly speaks; European Central Bank board member Luis de Guindos speaks

* US corporate earnings: Warner Bros Discovery, Tapestry, Constellation Energy, Evergy, Viatris, Gen Digital, Insulet, Epam Systems, Akamai Technologies, Mettler-Toledo, Charles River Laboratories

* Turkey's President Tayyip Erdogan visits the United States

* US Treasury auctions $25 billion of 30-year bonds

(By Mike Dolan, editing by Gareth Jones [email protected])

Copyright 2024 Thomson Reuters .

Tags: Switzerland , Coronavirus , European Union , United Kingdom , Europe , Japan

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Reaction to Hamas Saying It Accepted Gaza Ceasefire Proposal

People flee the eastern parts of Rafah after the Israeli military began evacuating Palestinian civilians ahead of a threatened assault on the southern Gazan city, amid the ongoing conflict between Israel and Hamas, in Rafah, in the southern Gaza Strip May 6, 2024. REUTERS/Hatem Khaled

(Reuters) -The Islamist Hamas militant group said on Monday it had accepted a proposal by mediators from Egypt and Qatar for a ceasefire in Gaza, while Israel played down that likelihood and still plans to proceed with a 90-day plan to invade Rafah.

Here are some reactions:

PALESTINIAN PRESIDENT MAHMOUD ABBAS

"We hope that Israel will commit to stopping the aggression and completely withdrawing from the Gaza Strip."

War in Israel and Gaza

ISRAELI PRIME MINISTER BENJAMIN NETANYAHU

"The war cabinet unanimously decided that Israel continue the operation in Rafah to exert military pressure on Hamas in order to advance the release of our hostages and the other goals of the war."

ISRAELI REAR ADMIRAL DANIEL HAGARI

"We examine every answer and response in the most serious manner and are exhausting every possibility regarding negotiations and returning the hostages.

"In parallel, we are still operating in the Gaza Strip and will continue to do so."

ISRAELI GOVERNMENT SPOKESPERSON DAVID MENCER

"We've asked civilians to move out of harm's way. We've been extremely specific about the areas which we'll be targeting."

US STATE DEPARTMENT SPOKESPERSON MATTHEW MILLER

"I can confirm that Hamas has issued a response. We are reviewing that response now and discussing it with our partners in the region."

A deal is "absolutely achievable."

WHITE HOUSE NATIONAL SECURITY SPOKESPERSON JOHN KIRBY

"We want to get these hostages out, we want to get a ceasefire in place for six weeks, we want to increase humanitarian assistance." Reaching an agreement would be the "absolute best outcome."

UNITED NATIONS SPOKESPERSON STEPHANE DUJARRIC

"The Secretary-General is deeply concerned by the indications that a large-scale military operation in Rafah may be imminent. ... The Secretary-General reminds the parties that the protection of civilians is paramount in international humanitarian law."

(Reporting by Reuters bureaux; Compiled by Richard Chang; Editing by Lisa Shumaker)

Copyright 2024 Thomson Reuters .

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Tags: Israel , Middle East

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The Innovator’s Quarterly: Handheld Skin Cancer Evaluation Tool Based on BU Research Receives FDA Clearance

April 2024 | news from bu industry engagement and technology development.

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• Speaking of microscopes, BU engineer Lei Tian is attracting funding from foundations and industry partners to develop petite, lightweight microscope designs empowered by special miniaturized lenses that enable powerful imaging despite their compact size.
• The Amazon Research Awards program seeks to fund machine learning research related to information security. Applications are due by Tuesday, May 7.
• On Tuesday, May 7, the BU community is invited to the presentation of the BU Innovator of the Year Award to Dr. Thomas Bifano, professor of mechanical engineering and director of the BU Photonics Center.

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Mark Your Calendar

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