This paper proposes an empirical assessment of the main factors behind the decision of a corporate sponsor to launch a socially responsible (SR) fund. Our analysis is performed on a database that encompasses 414 SR fund creations by 46 corporate sponsors between 1990 and 2012. We provide evidence that economic and human resources slack, leverage, low media coverage and high extra-financial performance of the corporate sponsor contribute to an increase of the probability to propose SR funds. These results lead us to argue that the introduction of such funds goes beyond the economic objective of enlarging the market share of the corporate sponsor. It may thus be seen as a particular strategy in terms of communication and signaling, due to the specific characteristics of SR funds.
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A slight change in the characteristics of the financial product allows their differentiation; as such, legal protection is very difficult to set up. By consequent, patents are very limited in the financial industry.
ISO 14001 requires firms to establish an Environment Management System (EMS) that allows handling environmental issues within the organization.
Launching a new SR fund may require hiring or designating a specific team devoted to define the SR screens, rate the different financial securities, pick up those that correspond to the pre-defined SR screens and then compose the final portfolio of the fund. If the corporate promoter uses extra-financial ratings provided by external rating agencies, these ratings may become extremely expensive. Finally, the corporate promoter must communicate and promote the new financial product.
We do not have information regarding the number of dead funds over the period under study. This may potentially induce a survivorship bias. However, following previous empirical evidence such as Gregory and Whittaker (2007), Kempf and Osthoff (2008) or Renneboog et al. (2008) suggesting that SR funds have low attrition rates when compared with conventional funds, we expect the impact of survivorship bias on our results to be limited.
If we accept the idea that the number of employees is positively correlated with the total assets of a company, then the matching should decrease the impact of the size on the decision to create SR funds.
We thus capture their values the year before the fund was introduced. As such, we are able to control the direction of causality, i.e., from the different explanatory variables, e.g., financial and extra-financial, to the decision to create a new SR fund.
The number of observations is given by the number of funds and not by the number of corporate promoters. As such, the variables characterizing the firms that introduced several funds as well as their matched counterparts are over-weighted.
One should notice that in this modeling, the number of dependent variables equal to 1 is the same as the number of dependent variables equal to 0.
All the estimations were performed with STATA.
We were supposed to perform our estimations on 828 observations (414 funds × 2 including our control sample); however, due to the lack of observations for several explanatory variables we were forced to work on 766 row vectors which correspond to 383 SR fund introductions.
The results remain unchanged when we perform our estimations using a probit model. The results are available upon request from the authors.
Nishitani (2009) for example concludes that the number of employees is positively correlated with the probability to adopt the ISO 14001 certification.
We cross-check our results with OLS regressions and the results remain unchanged. The results are available upon request from the authors.
Corporate social responsibility
Dow Jones Sustainability Index
Environmental, social and governance
Principles for responsible investment
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Peillex, J., Ureche-Rangau, L. Identifying the Determinants of the Decision to Create Socially Responsible Funds: An Empirical Investigation. J Bus Ethics 136, 101–117 (2016). https://doi.org/10.1007/s10551-014-2507-y
- Corporate sponsor
- Ethical finance
- SR funds
- Slack resources theory
- Resource-based perspectives