National Culture and Capital Flow Waves

Abstract

In this paper, we aim to analyze the determinants of cross-country SRI equity fund flow waves relative to their conventional counterparts. To this end, we use a comprehensive and survivorship bias-free dataset of SRI equity and conventional funds for 48 countries from January 1998 to July 2019. This study provides new evidence on massive, SR fund outflows and on the factors behind this behavior in terms of global push factors and domestic pull factors. It also enhances the role of national culture as a determinant of fund flows’ patterns. We use the four national cultural dimensions (Hofstede, 2001) broadly documented in the literature as driving cross-country cultural differences: power distance, individualism versus collectivism, masculinity versus femininity, and uncertainty avoidance. The results reveal that the drivers of massive outflows in international equity fund flows vary across countries (advanced versus emerging economies). When investigating the role of culture, our findings indicate that indeed, national values have a significant impact on the occurrence of extreme episodes, particularly for ethical fund flows. We also find that the magnitude of capital cutoffs is determined mainly by an association of global, domestic, contagion, and cultural factors.

Keywords: SRI equity funds, fund flows, sudden stops, push/pull factors, national culture