Does Socially Responsible Investing Change Firm Behavior?

64 Pages Posted: 5 May 2021 Last revised: 17 May 2021

See all articles by Davidson Heath

Davidson Heath

University of Utah - David Eccles School of Business

Daniele Macciocchi

University of Miami Herbert Business School

Roni Michaely

The University of Hong Kong; ECGI

Matthew C. Ringgenberg

University of Utah - Department of Finance

Date Written: May 1, 2021

Abstract

Socially responsible investment (SRI) funds are increasing in popularity. Yet, it is unclear if these funds improve corporate behavior. Using novel micro-level data, we find that SRI funds select firms with higher environmental and social standards: the firms they hold exhibit lower pollution, greater board diversity, higher employee satisfaction, higher workplace safety, and fewer customer complaints. Yet, using an exogenous shock to SRI capital, we find no evidence that SRI funds improve firm behavior. The results suggest SRI funds invest in a portfolio consistent with the fund's objective, but they do not significantly improve corporate conduct.

Keywords: Environmental, Social, and Governance (ESG), Institutional Investing, Socially Responsible Investing (SRI), Sustainability

JEL Classification: G12, G14

Suggested Citation

Heath, Davidson and Macciocchi, Daniele and Michaely, Roni and Ringgenberg, Matthew C., Does Socially Responsible Investing Change Firm Behavior? (May 1, 2021). European Corporate Governance Institute – Finance Working Paper No. 762/2021, Available at SSRN: https://ssrn.com/abstract=3837706

Davidson Heath

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Daniele Macciocchi

University of Miami Herbert Business School ( email )

P.O. Box 248126
Florida
Coral Gables, FL 33124
United States

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Matthew C. Ringgenberg (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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