How do the size and independence of the board of trustees affect the financial and sustainable performance of socially responsible mutual funds?

Fernando Muñoz

doi:10.1002/csr.1930

How do the size and independence of the board of trustees affect the financial and sustainable performance of socially responsible mutual funds?

Corporate Social Responsibility and Environmental Management ◽

10.1002/csr.1930 ◽

2020 ◽

Vol 27 (4) ◽

pp. 1834-1850

Author(s):

Fernando Muñoz

Keyword(s):

Mutual Funds ◽

Board Of Trustees ◽

Socially Responsible ◽

Sustainable Performance ◽

Socially Responsible Mutual Funds

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Style-changing behaviour in the socially responsible mutual fund industry: consequences on financial and sustainable performance

Sustainability Accounting Management and Policy Journal ◽

10.1108/sampj-03-2020-0084 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Fernando Muñoz ◽

María Vargas ◽

Ruth Vicente

Keyword(s):

Mutual Funds ◽

Mutual Fund ◽

Fixed Effects ◽

Socially Responsible ◽

Content Type ◽

Sustainable Performance ◽

Panel Regressions ◽

Money Flows ◽

Socially Responsible Mutual Funds ◽

Performance Ranking

Purpose This study aims to examine style-deviation practices in the socially responsible mutual funds (SMRF) industry i.e. how mutual funds game their stated financial objectives to earn a higher relative performance ranking. In addition, the consequences of such practices on sustainable scores and money flows are studied. Design/methodology/approach A sample of 454 US equity SRMFs is studied. This paper uses panel regressions controlling for time and style fixed-effects. Findings This study finds that 17.60% of SRMF managers in the sample are engaged in style deviation practices. These practices positively impact the sustainable performance of SRMFs and negatively impact their financial performance. One effect offsets the other and they consequently do not affect money flows. Another finding is that only investors with lower portfolio sustainability scores do show return-chaser behaviour. Practical implications This paper reveals that SRMF managers deviating from their stated financial style face a dilemma that is non-existent for their conventional peers that is style deviation practices affect financial and sustainable performance in opposing ways, whereas SRMF investor utility depends positively on both dimensions. The findings are not conclusive about the effectiveness of style deviation practices in attracting SRMF money flows. Social implications SRMF industry has experienced tremendous growth in the past decade. The increased competition in this industry has led managers to strive to attract investors, sometimes by relying on irregular practices that enhance their portfolio results. Regulators should consider how to avoid such perverse behaviour with a view to improving mutual funds transparency. Originality/value This is the first research that analyses style deviation practices and their consequences for the SRMF industry.

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