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Fund Loyalty Among Socially Responsible Investors: The Importance of the Economic and Ethical Domains

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Abstract

The corporate social responsibility literature has emphasized the importance of both economic and ethical domains of corporate behavior. Analyzing unprecedented survey data from investors in a socially responsible (SR) mutual fund, this article considers how economic and ethical concerns shape shareholder investment behavior. In particular, this article analyzes levels of investor fund loyalty, defined as the continued investment in a mutual fund despite the belief that one is earning a lower return on investment. Building upon existing research that shows SR fund assets are more stable than conventional fund assets, this article leverages within respondent comparisons to clarify that dual investors (i.e., those who invest in both SR and conventional funds) are more loyal to their SR fund than to their conventional fund. This suggests that a corporation’s ethical behavior attracts more patient investment capital, an important consideration for any corporation that is deciding to what degree it should engage in corporate social responsibility. In addition, this article empirically demonstrates that economic motivations reduce SR fund loyalty and that ethical motivations induce SR fund loyalty. This evidence that ethical motivation is associated with fund loyalty advances research on morality in the market by yielding empirical evidence to a largely theoretical debate.

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Notes

  1. MMA has since changed its name to Everence.

  2. By including assets held by large institutional investors and individuals alike, an estimated 12.2 % of total assets under management is invested according to SR criteria (Social Investment Forum 2010). However, given this article’s focus on the social behavior of individual investors (not institutional investors), I focus on the proportion of mutual fund assets because it more closely approximates individual investor behavior.

  3. This estimate is produced from the Association of Statisticians of American Religious Bodies (ASARB) and retrieved from the ARDA (http://www.thearda.com/).

  4. Clustered results were modeled with Stata using the vce(cluster clustvar) option.

  5. It could be the case that individuals largely defer to their financial advisors and therefore practice limited decision making. The phone survey measures whether respondents have a financial advisor that helps them with mutual fund investment decisions (and 69 % of all survey respondents do) and how heavily these respondents rely on their financial adviser when making mutual fund buy-and-sell decisions. A variable that measures reliance on financial adviser has no impact on fund loyalty (not shown here).

  6. In separate analysis (available upon request), a measure that multiples the binary Informed of ethical attribute variable and the Likert scale Valuation of ethical attribute variable is used for both advocacy and screening. This practice conforms to expectancy-value theory (EVT) and its results confirm the results presented in this article. Namely, the multiplication of Informed of Advocacy by Valuation of Advocacy is unassociated with fund loyalty while Informed of Screening by Valuation of Screening is positively associated and statistically significant.

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Authors and Affiliations

  1. Department of Sociology, Rice University, 6100 Main MS-28, Houston, TX, 77005, USA

    Jared L. Peifer

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Correspondence to Jared L. Peifer.

Appendix

Appendix

Table 5 Logistic regression of fund disloyalty (sold shares in past) (N = 491)
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Peifer, J.L. Fund Loyalty Among Socially Responsible Investors: The Importance of the Economic and Ethical Domains. J Bus Ethics 121, 635–649 (2014). https://doi.org/10.1007/s10551-013-1746-7

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