Measuring Investors’ Socially Responsible Preferences in Mutual Funds

The aim of this study is to analyze investor behavior towards socially responsible mutual funds. The analysis is based on an experimental study where a sample of individuals takes investment decisions under different parameters of information about the investment alternatives and expected returns. In the experiment, each participant decides how to distribute an investment budget between two funds, returns on which are uncertain and change over time. Two treatments are conducted, each providing a different degree of information on the socially responsible (SR) character of one of the two investment alternatives. The results obtained suggest that although individuals’ criteria for investment are essentially guided by returns and diversification, participants invest significantly more in a fund when they are explicitly informed about its SR nature. In particular, participants who declare being concerned about SR actually invest significantly more in the SR alternative. Furthermore, the level of SR faithfulness among a small group of investors is such that they invest the main share of their budget in the SR fund, even when the return differential is highly unfavorable. Providing clear information about the SR characteristics of an investment is crucial to help investors express their preferences.     

Investing in Socially Responsible Companies is a must for Public Pension Funds – Because there is no Better Alternative

>With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporations long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a companys long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension funds trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to socially responsible investing (SRI) and when applied to corporations, it is termed socially responsible corporate conduct (SRCC). We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients, i.e. pension funds, best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic.     

Are Socially Responsible Firms Associated with Socially Responsible Citizens? A Study of Social Distancing During the Covid-19 Pandemic

Journal of Business Ethics - The literature on the interplay between geographic communities and organizations has largely ignored the role of individual residents. In adopting a meso-perspective,...     

What is really unethical about insider trading?

Insider trading is illegal, and is widely believed to be unethical. It has received widespread attention in the media and has become, for some, the very symbol of ethical decay in business. For a practice that has come to epitomize unethical business behavior, however, insider trading has received surprisingly little ethical analysis. This article critically examines the principal ethical arguments against insider trading: the claim that the practice is unfair, the claim that it involves a misappropriation of information and the claim that it harms ordinary investors and the market as a whole. The author concludes that each of these arguments has some serious deficiencies; no one of them by itself provides a sufficient reason for outlawing insider trading. This does not mean, however, that there are no reasons for prohibiting the practice. The author argues that the real reason for outlawing insider trading is that it undermines the fiduciary relationship that lies at the heart of American business. Jennifer Moore is an Assistant Professor in the Department of Philosophy and the Department of Business Administration at the University of Delaware. She teaches and does research in the areas of business ethics and business law. She is the author of several articles in business ethics and co-editor of the anthology, Business Ethics: Readings and Cases in Corporate Morality, published by McGraw-Hill.     

Why Wine is not Glue? The Unresolved Problem of Negative Screening in Socially Responsible Investing

The purpose of socially responsible investing (SRI) is to: (1) allow investors to reflect their personal values and ethics in their choices, and (2) encourage companies to improve their ethical, social, and environmental performance. In order to achieve these ends, the means SRI fund managers employ include the use of negative screening, or the exclusion of companies involved in “sinful” industries. We argue that there are problems with this methodology, both at a theoretical and at a practical level. As a consequence, current SRI offerings cannot accurately reflect the values and ethical beliefs they propose to represent. Moreover, the use of a␣priori criteria is potentially misleading, as we show by discussing examples of glue and wine making. Applying this flawed approach SRI funds fail to influence the direction of the firms they deem most in need of re-directing. Rather than engaging in the simple a␣priori assumption that some industries are “saints” while others are “sinners” (Freeman, 2007) we suggest a new framework upon which the SRI screening methodology could be grounded. Embracing the philosophical tradition of American pragmatism, we suggest that SRI methodology could be improved by engaging in an analysis based on (1) the actual impacts of the company’s products and services, (2) the company’s relationships with its specific, real stakeholders, and (3) the contingent environment (social, economic, political, legal, and cultural) in which the business operates.     

Socially Responsible Investing: Is Your Fiduciary Duty at Risk?

Socially responsible investing identifies the fiduciary duty and liability for financial advisors serving individual and institutional clients when consulting in the SRI space. This article first discusses the role of a fiduciary emerging from both a legal and an ethical basis. Further, the special aspects of maintaining fiduciary duty and minimizing fiduciary liability are described as they relate to SRI. A number of recommendations are discussed: legal, ethical, and practice. This study argues that prudence focuses more on the process of decisions rather than their outcomes, as measured exclusively by rate of return.     

Work–Family Practices and Complexity of Their Usage: A Discourse Analysis Towards Socially Responsible Human Resource Management

Journal of Business Ethics - The question of work–family practices commonly arises in both theory and daily practice as a matter of responsibility in today’s organisations. More...     

Do Non-socially Responsible Companies Achieve Legitimacy Through Socially Responsible Actions? The Mediating Effect of Innovation

This study investigates the effects on organization’s financial performances of, first, the extent to which the organizations are involved in controversial business activities, and second, their level of social performance. These companies can be considered non-socially responsible given the harmful nature of the activities they are involved in. Managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors’ perception about them. We develop a comprehensive methodology to investigate these corporate social performance (CSP)-related effects in a complex but specific setting. To this end, we analyze a sample of 202 US firms for the period 2005–2008 using a novel method in this area: partial least squares. Our results indicate that, contrary to the general findings in prior literature, companies involved in controversial business activities which engage in CSP do not directly reduce the negative perception that stakeholders have about them. Instead, we found evidence of a positive mediation effect of CSP on financial market-based performance through innovation.     

Are Politically Endorsed Firms More Socially Responsible? Selective Engagement in Corporate Social Responsibility

Journal of Business Ethics - The state plays a major role in corporate social responsibility (CSR) in emerging and transitional economies and often influences firms through political connection,...     

What about China's Trade Deficit?

With its rapid economic growth over recent years,China has become an important force to be reckoned in the world.The ever-rising trade surplus makes a good example.But does Chinese enjoy a trade surplus with every foreign country? The answer is"No". Official statistics show that China has a trade defi- cit with partners in East Asia including Japan,North Korea and ASEAN(Association of Southeast Asian Na- tions)countries.In terms of trade structure,China also suf-     

What about the Intended Consequences?

Research that examines race-stereotyped advertising emphasizes the social impact of these representations and overlooks the potential positive effect on advertising effectiveness. The present research examines the effects of race-stereotyped portrayals on advertising effectiveness among both members and nonmembers of a group that is stereotyped in an advertisement. We integrate research on consumer identity, social categorization, and advertising persuasion to hypothesize the process underlying viewers' attitude formation when exposed to advertising featuring a race-stereotyped portrayal. Results of an experiment conducted in South Africa demonstrate that members of the group that is the subject of the stereotyped portrayal (stereotyped viewers) feel offended. At the same time, results suggest that nonstereotyped viewers experience ambivalence when exposed to stereotyped portrayals. Findings highlight the role of viewers' strength of identification and provide guidance to advertisers with regard to the use of stereotyped portrayals in advertising.     

What is Capital Flight?

This paper offers a definitive distinction between capital flight and capital outflows. It unifies and synthesises the capital flight concept as used in both theoretical and empirical work and shows that various definitions have two common elements. These are: (1) capital flight is a subset of capital outflows from developing countries by its residents; (2) these outflows must be motivated by risks and uncertainties that are peculiar to developing countries. The former points to the counter‐intuitive nature of these outflows. The latter gives these counterintuitive outflows’ explanation. We then propose an econometric method to measure this concept, and illustrate its use by applying it to Korea.     

What is business ethics? A reply to peter drucker

In his What is Business Ethics? Peter Drucker accuses business ethics of singling out business unfairly for special ethical treatment, of subordinating ethical to political concerns, and of being, not ethics at all, but ethical chic. We contend that Drucker's denunciation of business ethics rests upon a fundamental misunderstanding of the field. This article is a response to his charges and an effort to clarify the nature, scope and purpose of business ethics.     

Theory of Virtue Ethics: Do Consumers’ Good Traits Predict Their Socially Responsible Consumption?

Drawing upon the theory of virtue ethics, this study builds a decision tree predictive model to explore the anticipated impact of good traits (i.e., virtuous and personality traits) on socially responsible consumption. Using R statistical software, we generate a classification tree and cross-validate the model on two independent datasets. The results indicate that the virtuous traits of self-efficacy, courage, and self-control, as well as the personality traits of openness and conscientiousness, predict socially responsible purchase and disposal behavior. Remarkably, the largest segment of socially responsible consumers in the study (41 %) scored high in self-efficacy and openness. This result suggests that marketers should focus on these good traits when creating advertisements to encourage sustainable consumption. Our study contributes to enhancing knowledge about the social and psychological aspects of the sustainability movement and provides a new analytical approach to predicting socially responsible consumption.