Voice and Exit: Mutual Funds' Reactions to ESG Scandals

60 Pages Posted: 5 Dec 2024

See all articles by Daniel Schmidt

Daniel Schmidt

HEC Paris - Finance Department

Fatima Zahra Filali Adib

Copenhagen Business School - Department of Finance

Bastian von Beschwitz

Board of Governors of the Federal Reserve System

Date Written: November 8, 2024

Abstract

We study how mutual funds respond to ESG scandals of portfolio companies. We find that, after experiencing an ESG scandal in their portfolio, active mutual fund managers (but not passive ones) are both more likely to vote in favor of ESG proposals and to reduce their stakes (and hence their voting power) in high-ESG risk stocks compared to other funds holding the same stock at the same time. Our results suggest that scandal-shocked funds manage ESG risks in their portfolios, but fail to have much impact as exit undermines their engagement efforts precisely for those firms that have the biggest need for reform.

Suggested Citation

Schmidt, Daniel and Filali, Fatima Zahra and von Beschwitz, Bastian, Voice and Exit: Mutual Funds' Reactions to ESG Scandals (November 8, 2024). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2024, Available at SSRN: https://ssrn.com/abstract=5037448 or http://dx.doi.org/10.2139/ssrn.5037448

Daniel Schmidt (Contact Author)

HEC Paris - Finance Department ( email )

France
0652678597 (Phone)

HOME PAGE: http://daniel-schmidt.eu

Fatima Zahra Filali

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3, SOL/A4.17
Copenhagen, Frederiksberg 2000
Denmark

Bastian Von Beschwitz

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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