The Role of Mutual Funds in Corporate Social Responsibility

39 Pages Posted: 18 Apr 2019

See all articles by Zhichuan Frank Li

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Saurin Patel

Ivey Business School, Western University

Srikanth Ramani

University of New Brunswick - Saint John

Date Written: April 4, 2019

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 a mutual fund’s CSR score is positively related to a firm’s future CSR standings. This relationship is not just driven by high-CSR funds selecting high-CSR firms (initial selection effect), but also by improving their CSR standings afterwards (subsequent improvement effect). The effects of mutual funds on firm CSR are more pronounced for firms with higher mutual fund ownership and stronger corporate governance. Furthermore, we find that high-CSR funds are more likely to vote in favor of implementing CSR proposals, and that firms owned by high-CSR funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that the social commitment of mutual funds is an important determinant of a firm’s social performance.

Keywords: Corporate Social Responsibility, Mutual Funds, Socially Responsible Investment, Corporate Governance, Executive Compensation

JEL Classification: D22, G12, G15, M14

Suggested Citation

Li, Zhichuan Frank and Patel, Saurin and Ramani, Srikanth, The Role of Mutual Funds in Corporate Social Responsibility (April 4, 2019). Available at SSRN: https://ssrn.com/abstract=3366100 or http://dx.doi.org/10.2139/ssrn.3366100

Zhichuan Frank Li (Contact Author)

University of Western Ontario - Ivey School of Business ( email )

1151 Richmond Street North
London Ontario, Ontario N6A 3K7
Canada

Saurin Patel

Ivey Business School, Western University ( email )

1255 Western Road
Room 2303
London, Ontario N6G 0N1
Canada
519-661-4195 (Phone)

Srikanth Ramani

University of New Brunswick - Saint John ( email )

Saint John, Canada
Saint John, New Brunswick E2L 4L5
Canada

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