Can Green Investments Increase Your Green? Evidence from Social Hedge Fund Activists

Jonghyuk Bae (), Natalya Khimich (), Sungsoo Kim () and Emanuel Zur ()
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Jonghyuk Bae: Wenzhou-Kean University
Natalya Khimich: Drexel University
Sungsoo Kim: Rutgers University
Emanuel Zur: University of Maryland

Journal of Business Ethics, 2023, vol. 187, issue 4, No 8, 801 pages

Abstract: Abstract In our study, we examine the association between hedge fund activism and a target firm’s corporate social responsibility (CSR) activities and whether activists can promote socially responsible investments while upholding shareholders’ interests. Using different matched samples, we find a strong positive association between the target firm’s CSR in the year before it is targeted by activists and its probability of being targeted by a hedge fund. Classifying hedge fund activists into socially and non-socially responsible funds based on their objectives, we find that both give similar level of consideration to a firm’s CSR activities when initiating campaigns. Similar to DesJardine and Durand (DesJardine and Durand, Strategic Management Journal 41:1054–1082, 2020), we demonstrate that hedge funds have, on average, a negative impact on target firms’ CSR in the years following the initial investments. Complementary to DesJardine and Durand (DesJardine and Durand, Strategic Management Journal 41:1054–1082, 2020), we compare the two types of hedge funds and find an asymmetric effect of the hedge funds’ campaigns. Socially responsible hedge fund campaigns are associated with a large increase in their target’s CSR, whereas non-socially responsible hedge funds decrease this measure in their target. Finally, we find that target firms exhibit a long-term improvement in future stock returns and profitability. These findings provide evidence that certain types of activists, such as socially responsible funds, promote both stakeholder and shareholders’ long-term interests.

Keywords: Hedge fund; CSR; Social fund (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10551-022-05230-x

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