Why Do Investors Hold Socially Responsible Mutual Funds?

Riedl, Arno; Smeets, Paul

doi:10.2139/ssrn.2354905

Why Do Investors Hold Socially Responsible Mutual Funds?

Journal of Finance, Forthcoming

Netspar Discussion Paper No. 08/2013-043 (revised December 2016)

73 Pages Posted: 15 Nov 2013 Last revised: 22 Jul 2017

See all articles by Arno Riedl

Arno Riedl

Maastricht University; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Netspar

Paul Smeets

Maastricht University

There are 3 versions of this paper

Date Written: July 19, 2017

Abstract

To understand why investors hold socially responsible mutual funds, we link administrative data to survey responses and behavior in incentivized experiments. We find that both social preferences and social signaling explain socially responsible investment (SRI) decisions. Financial motives play less of a role. Socially responsible investors in our sample expect to earn lower returns on SRI funds than on conventional funds and pay higher management fees. This suggests that investors are willing to forgo financial performance in order to invest in accordance with their social preferences.

Keywords: experimental finance, social preferences, socially responsible investments, mutual funds

JEL Classification: G11, D64, C90

Suggested Citation: Suggested Citation

Riedl, Arno M. and Smeets, Paul, Why Do Investors Hold Socially Responsible Mutual Funds? (July 19, 2017). Journal of Finance, Forthcoming; Netspar Discussion Paper No. 08/2013-043 (revised December 2016). Available at SSRN: https://ssrn.com/abstract=2354905 or http://dx.doi.org/10.2139/ssrn.2354905