The Role of Mutual Funds in Corporate Social Responsibility

Authors

Zhichuan LiFollow
Saurin Patel, Ivey Business School
Srikanth RamaniFollow

Document Type

Article

Publication Date

2020

Volume

174

Issue

1

Journal

Journal of Business Ethics

First Page

715

URL with Digital Object Identifier

https://doi.org/10.1007/s10551-020-04618-x

Last Page

737

Abstract

This paper examines the role of mutual funds in corporate social responsibility (CSR). Using a fund-level, holdings-based CSR score, we find that CSR-friendly mutual funds improve firms’ CSR standings. This effect is more pronounced for firms with higher mutual fund ownership and stronger corporate governance. We further show that while CSR-friendly mutual funds have influence on almost all CSR categories, they focus on increasing CSR strengths rather than reducing CSR concerns. We also discover that CSR-friendly funds are more likely to vote in favor of CSR proposals, and that firms owned by CSR-friendly funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that actively managed mutual funds, which were previously thought to be indifferent (or even detrimental) to social and ethical issues, play a significant role in corporate social outcomes of the firms they invest in.