The Role of Mutual Funds in Corporate Social Responsibility

Zhichuan Frank Li (), Saurin Patel () and Srikanth Ramani ()
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Zhichuan Frank Li: Western University
Saurin Patel: Western University
Srikanth Ramani: University of New Brunswick

Journal of Business Ethics, 2021, vol. 174, issue 3, No 12, 715-737

Abstract: Abstract 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.

Keywords: Corporate social responsibility; Mutual funds; Socially responsible investment; Corporate governance; Executive compensation (search for similar items in EconPapers)
JEL-codes: D22 G12 G15 M14 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (14)

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DOI: 10.1007/s10551-020-04618-x

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