Does Social Capital Foster Sustainable Investment?
Forthcoming, European Financial Management
56 Pages Posted: 1 Aug 2022 Last revised: 4 Aug 2022
Date Written: December 1, 2021
How do country-level societal norms affect financial investments? We provide evidence that mutual funds managed in high social capital countries are inclined to consider environmental, social, and governance filters in their portfolios, especially when acquiring new stocks and investing abroad. We argue that social capital nurtures the investment preferences of retail investors, whose demand incentivizes fund managers to respond in kind. Such impact is more pronounced in individualistic and high–power distance societies, suggesting that the social cohesion benefit of social capital complements altruistic inclinations in the former and provides mechanisms to punish unsustainable investment behavior in the latter.
Keywords: Mutual funds, sustainable investment, social capital, ESG
JEL Classification: G15, G41, M14, Z13
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