Firm-Level ESG News and Active Fund Management

66 Pages Posted: 29 Jan 2021 Last revised: 5 Apr 2021

See all articles by Linquan Chen

Linquan Chen

University of Exeter

Yao Chen

University of Exeter Business School

Alok Kumar

University of Miami - Miami Herbert Business School

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh

Date Written: December 11, 2020

Abstract

Using firm-level ESG news indices, we examine whether active mutual fund managers skillfully integrate material ESG information into their portfolio decisions. We find firm-level ESG news affects mutual fund holdings. Fund managers incorporate material ESG news to cater to investor demand and they also improve their risk-adjusted performance. The ESG news-holding relation is stronger during periods of high ESG demand. In the cross-section, the relation is stronger among funds with retail-oriented clienteles, better ESG ratings, and higher marketing fees. In addition, funds located in Democratic states and managed by “domestic” managers exhibit stronger sensitivity to ESG news.

Keywords: ESG news, materiality, sustainable investing, mutual funds, catering, investment skill

JEL Classification: G11, G23, G41

Suggested Citation

Chen, Linquan and Chen, Yao and Kumar, Alok and Leung, Woon Sau, Firm-Level ESG News and Active Fund Management (December 11, 2020). University of Miami Business School Research Paper No. 3747085, Available at SSRN: https://ssrn.com/abstract=3747085 or http://dx.doi.org/10.2139/ssrn.3747085

Linquan Chen

University of Exeter ( email )

Streatham Court
Exeter, EX4 4ST
United Kingdom
7749606688 (Phone)
7749606688 (Fax)

Yao Chen (Contact Author)

University of Exeter Business School ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

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