Are environmental social governance equity indices a better choice for investors? An Asian perspective

Business Ethics

Volumn 25, Issue 4, 2016, Pages 440-459

  Ur Rehman, Ramiz ^a,b   Zhang, Junrui ^a   Uppal, Jamshed ^c   Cullinan, Charles ^d   Akram Naseem, Muhammad ^b  

^a XI'AN JIAOTONG UNIVERSITY   (China)

^b UNIVERSITY OF LAHORE   (Pakistan)

^c CATHOLIC UNIVERSITY OF AMERICA   (United States)

^d BRYANT UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 84991720210     PISSN: 09628770     EISSN: 14678608     Source Type: Journal    
DOI: 10.1111/beer.12127     Document Type: Article

References (109)

1. Abugri, B.A. 2008. ‘Empirical relationship between macroeconomic volatility and stock returns: evidence from Latin American markets’. International Review of Financial Analysis, 17:3, 396–410.
2. Adler, M. and Dumas, B. 1983. ‘International portfolio choice and corporation finance: a synthesis’. Journal of Finance, 38:3, 925–984.
3. Ambachtsheer, K.P. 2011. Pension Revolution: A Solution to the Pensions Crisis. New York: John Wiley & Sons.
4. Bansal, R., Hsieh, D.A. and Viswanathan, S. 1993. ‘A new approach to international arbitrage pricing’. Journal of Finance, 48:5, 1719–1747.
5. Bauer, R., Derwall, J. and Otten, R. 2007. ‘The ethical mutual fund performance debate: new evidence from Canada’. Journal of Business Ethics, 70:2, 111–124.
6. Bauer, R., Koedijk, K. and Otten, R. 2005. ‘International evidence on ethical mutual fund performance and investment style’. Journal of Banking & Finance, 29:7, 1751–1767.
7. Beal, D.J., Goyen, M. and Philips, P. 2005. ‘Why do we invest ethically?’. The Journal of Investing, 14:3, 66–78.
8. Bekaert, G. and Harvey, C.R. 1997. ‘Emerging equity market volatility’. Journal of Financial Economics, 43:1, 29–77.
9. Bello, Z.Y. 2005. ‘Socially responsible investing and portfolio diversification’. Journal of Financial Research, 28:1, 41–57.
10. Beltratti, A. 2003. ‘Socially responsible investment in general equilibrium’. FEEM Working Paper No. 93.2003. Available at SSRN: http://ssrn.com/abstract=467240.
11. Bénabou, R. and Tirole, J. 2010. ‘Individual and corporate social responsibility’. Economica, 77:305, 1–19.
12. Boutin-Dufresne, F. and Savaria, P. 2004. ‘Corporate social responsibility and financial risk’. The Journal of Investing, 13:1, 57–66.
13. Brown, A.B. 2016. ‘Institutional differences and international private debt markets: a test using mandatory IFRS adoption’. Journal of Accounting Research, 54:3, 679–723.
14. Buckberg, E. 1995. ‘Emerging stock markets and international asset pricing’. The World Bank Economic Review, 9:1, 51–74.
15. Christensen, M. and Guyoton, S. 2003. ‘Can SRI help corporate governance’. EUROSIF publication. Available at: www.eurosif.org/content/download/413/2809/version/1/file/art-insead-2003-02.pdf.
16. Clow, R. 1999. ‘Money that grows on trees’. Institutional Investor, 33:10, 212–215.
17. Corporation of London. 2002. Financing the Future: The London Principles. The Role of UK Financial Services in Sustainable Development. London: Corporation of London.
18. Cox, P., Brammer, S. and Millington, A. 2004. ‘An empirical examination of institutional investor preferences for corporate social performance’. Journal of Business Ethics, 52:1, 27–43.
19. Cullinan, C.P., Mahoney, L. and Roush, P.B. 2015. ‘External CSR ratings and shareholder voting patterns for CSR proposals’. Working paper, Bryant University.
20. Cumby, R.E and Glen, J.D. 1990. ‘Evaluating the performance of international mutual funds’. Journal of Finance, 45:2, 497–521.
21. Cummings, L.S. 2000. ‘The financial performance of ethical investment trusts: an Australian perspective’. Journal of Business Ethics, 25:1, 79–92.
22. D'Antonio, L., Johnsen, T. and Hutton, R.B. 1997. ‘Expanding socially screened portfolios: an attribution analysis of bond performance’. The Journal of Investing, 6:4, 79–86.
23. Dam, L. 2008. ‘Corporate social responsibility and financial markets’. PhD Dissertation, University of Groningen, Groningen.
24. Derwall, J., Guenster, N., Bauer, R. and Koedijk, K. 2005. ‘The eco-efficiency premium puzzle’. Financial Analysts Journal, 61:2, 51–63.
25. Dickinson, J.P. and Muragu, K. 1994. ‘Market efficiency in developing countries: a case study of the Nairobi Stock Exchange’. Journal of Business Finance & Accounting, 21:1, 133–150.
26. Diltz, J.D. 1995a. ‘Does social screening affect portfolio performance?’. The Journal of Investing, 4:1, 64–69.
27. Diltz, J.D. 1995b. ‘The private cost of socially responsible investing’. Applied Financial Economics, 5:2, 69–77.
28. Donaldson, T. and Preston, L.E. 1995. ‘The stakeholder theory of the corporation: concepts, evidence, and implications’. Academy of Management Review, 20:1, 65–91.
29. El Ghoul, S., Guedhami, O., Kwok, C.C. and Mishra, D.R. 2011. ‘Does corporate social responsibility affect the cost of capital?’. Journal of Banking & Finance, 35:9, 2388–2406.
30. European Centre for Corporate Engagement (ECCE). 2007. ‘Use of extra-financial information on ESG factors by research analysts and investment managers’. European Centre for Corporate Engagement, Maastricht.
31. EUROSIF. 2003. ‘Socially responsible investment among European institutional investors 2003 Report’. Available at: http://www.eurosif.org/publication/view/european-sri-study-2003/ (accessed 1 August 2016).
32. EUROSIF. 2006. ‘European SRI Study 2006’. Available at: http://www.eurosif.org/publication/view/european-sri-study-2006/ (accessed 1 August 2016).
33. Fama, E.F. 1970. ‘Efficient capital markets: a review of theory and empirical work’. The Journal of Finance, 25:2, 383–417.
34. Fama, E.F. 1998. ‘Market efficiency, long-term returns, and behavioral finance’. Journal of Financial Economics, 49:3, 283–306.
35. Ferruz, L., Muñoz, F. and Vargas, M. 2010. Stock picking, market timing and style differences between socially responsible and conventional pension funds: evidence from the United Kingdom’. Business Ethics: A European Review, 19:4, 408–422.
36. Ferson, W.E. and Harvey, C.R. 1993. ‘The risk and predictability of international equity returns’. Review of Financial Studies, 6:3, 527–566.
37. Fowler, S.J. and Hope, C. 2007. ‘A critical review of sustainable business indices and their impact’. Journal of Business Ethics, 76:3, 243–252.
38. Freeman, R.E. 2010. Strategic Management: A Stakeholder Approach. Cambridge: Cambridge University Press.
39. Friedman, A. 1970. ‘The social responsibility of business is to increase its profits’. New York Times Magazine, 13 September.
40. Gębka, B. 2012. ‘The dynamic relation between returns, trading volume, and volatility: lessons from spillovers between Asia and the United States’. Bulletin of Economic Research, 64:1, 65–90.
41. Girard, E.C., Rahman, H. and Stone, B.A. 2007. ‘Socially responsible investments: Goody-two-shoes or bad to the bone?’. The Journal of Investing, 16:1, 96–110.
42. Girerd-Potin, I., Jimenez-Garcès, S. and Louvet, P. 2012. ‘The link between social rating and financial capital structure’. Finance, 32:2, 9–52.
43. Guerard Jr, J.B. 1997. ‘Additional evidence on the cost of being socially responsible in investing’. The Journal of Investing, 6:4, 31–36.
44. Hamilton, S., Jo, H. and Statman, M. 1993. ‘Doing well while doing good? The investment performance of socially responsible mutual funds’. Financial Analysts Journal, 49:6, 62–66.
45. Harvey, C.R. 1991. ‘The world price of covariance risk’. The Journal of Finance, 46:1, 111–157.
46. Harvey, C.R. 1995. ‘Predictable risk and returns in emerging markets’. Review of Financial Studies, 8:3, 773–816.
47. Harvey, C.R. and Zhou, G. 1993. ‘International asset pricing with alternative distributional specifications’. Journal of Empirical Finance, 1:1, 107–131.
48. Heinkel, R., Kraus, A. and Zechner, J. 2001. ‘The effect of green investment on corporate behavior’. Journal of Financial and Quantitative Analysis, 36:4, 431–449.
49. Hodrick, R.J. 1981. ‘International asset pricing with time-varying risk premia’. Journal of International Economics, 11:4, 573–587.
50. Hopp, C. and Dreher, A. 2013. ‘Do differences in institutional and legal environments explain cross-country variations in IPO underpricing?’. Applied Economics, 45:4, 435–454.
51. Hudson, J. 2006. The Social Responsibility of the Investment Profession. New York: CFA Institute Research Foundation.
52. Husted, B.W., Jamali, D. and Saffar, W. 2015. ‘Near and dear? The role of location in CSR engagement’. Strategic Management Journal, doi: 10.1002/smj.2437.
53. Jamali, D. and Neville, B. 2011. ‘Convergence versus divergence of CSR in developing countries: an embedded multi-layered institutional lens’. Journal of Business Ethics, 102:4, 599–621.
54. Juravle, C. and Lewis, A. 2008. ‘Identifying impediments to SRI in Europe: a review of the practitioner and academic literature’. Business Ethics: A European Review, 17:3, 285–310.
55. Kalimipalli, M. and Nayak, S. 2012. ‘Idiosyncratic volatility vs. liquidity? Evidence from the US corporate bond market’. Journal of Financial Intermediation, 21:2, 217–242.
56. Kolstad, I. 2016. ‘Three questions about engagement and exclusion in responsible investment’. Business Ethics: A European Review, 25:1, 45–58.
57. Kreander, N., Gray, R.H., Power, D.M. and Sinclair, C.D. 2005. ‘Evaluating the performance of ethical and non-ethical funds: a matched pair analysis’. Journal of Business Finance & Accounting, 32:7–8, 1465–1493.
58. Kurtz, L. 2002. ‘Studies in the field of SRI investing’. Available at www.sristudies.org (accessed 1 August 2016).
59. Kytle, B. and Ruggie, J. G. 2005. ‘Corporate social responsibility as risk management: a model for multinationals’. Harvard University Corporate Social Responsibility Initiative Working Paper No. 10.
60. Le Maux, J. and Le Saout, E. 2004. ‘The performance of sustainability indexes’. Finance India, 18, 737–750.
61. Lintner, J. 1965. ‘The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets’. The Review of Economics and Statistics, 47:1, 13–37.
62. Lizarzaburu, E.R. 2011. ‘Corporate social responsibility and operational risk: the impact of CSR in organizations as a tool to reduce the operational risks’. Available at http://ssrn.com/abstract=1802677.
63. Luther, R.G., Matatko, J. and Corner, D.C. 1992. ‘The investment performance of UK “ethical” unit trusts’. Accounting, Auditing & Accountability Journal, 5:4, 57–70.
64. Mackey, A., Mackey, T.B. and Barney, J.B. 2007. ‘Corporate social responsibility and firm performance: investor preferences and corporate strategies’. Academy of Management Review, 32:3, 817–835.
65. Managi, S., Okimoto, T. and Matsuda, A. 2012. ‘Do socially responsible investment indexes outperform conventional indexes?’. Applied Financial Economics, 22:18, 1511–1527.
66. Margolis, J.D. and Walsh, J.P. 2003. Misery loves companies: rethinking social initiatives by business’. Administrative Science Quarterly, 48:2, 268–305.
67. Markowitz, H. 1952. ‘Portfolio selection’. The Journal of Finance, 7:1, 77–91.
68. McCann, L., Solomon, A. and Solomon, J. 2003. ‘Explaining the growth in UK socially responsible investment’. Journal of General Management, 28:4, 15–36.
69. McLachlan, J. and Gardner, J. 2004. ‘A comparison of socially responsible and conventional investors’. Journal of Business Ethics, 52:1, 11–25.
70. Merton, R.C. 1987. ‘A simple model of capital market equilibrium with incomplete information’. The Journal of Finance, 42:3, 483–510.
71. Morgenson, G. 2014. ‘Effort begins for more say on directors’. The New York Times, 5 November, B1.
72. Moskowitz, M. 1972. ‘Choosing socially responsible stocks’. Business and Society Review, 1:1, 71–75.
73. Orlitzky, M., Schmidt, F.L. and Rynes, S.L. 2003. ‘Corporate social and financial performance: a meta-analysis’. Organization Studies, 24:3, 403–441.
74. Ortiz, E. and Arjona, E. 2001. ‘Heterokedastic behavior of the Latin American emerging stock markets’. International Review of Financial Analysis, 10:3, 287–305.
75. Renneboog, L., Ter Horst, J. and Zhang, C. 2008. ‘The price of ethics and stakeholder governance: the performance of socially responsible mutual funds’. Journal of Corporate Finance, 14:3, 302–322.
76. Revelli, C. and Viviani, J.L. 2015. ‘Financial performance of socially responsible investing (SRI): what have we learned? A meta-analysis’. Business Ethics: A European Review, 24:2, 158–185.
77. Rodrigo, P., Duran, I. and Arenas, D. 2016. ‘Does it really pay to be good, everywhere? A first step to understand the corporate social and financial performance link in Latin American controversial industries’. Business Ethics: A European Review, 25:3, 286–309.
78. Roll, R. 1977. ‘A critique of the asset pricing theory's tests part I: on past and potential testability of the theory’. Journal of Financial Economics, 4:2, 129–176.
79. Ross, S.A. 1976. ‘The arbitrage theory of capital asset pricing’. Journal of Economic Theory, 13:3, 341–360.
80. Ross, S.A. and Walsh, M.M. 1983. ‘A simple approach to the pricing of risky assets with uncertain exchange rates’. Research in International Business and Finance, 3, 39–54.
81. Rudd, A. 1981. ‘Social responsibility and portfolio performance’. California Management Review, 23:4, 55–61.
82. Russo, M.V. and Fouts, P.A. 1997. ‘A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40:3, 534–559.
83. Sauer, D.A. 1997. ‘The impact of social-responsibility screens on investment performance: evidence from the Domini 400 Social Index and Domini Equity Mutual Fund’. Review of Financial Economics, 6:2, 137–149.
84. Scholtens, B. 2005. ‘Style and performance of Dutch socially responsible investment funds’. The Journal of Investing, 14:1, 63–72.
85. Scholtens, B. 2006. ‘Finance as a driver of corporate social responsibility’. Journal of Business Ethics, 68:1, 19–33.
86. Schröder, M. 2003. ‘Socially responsible investments in Germany, Switzerland and the United States – An analysis of investment funds and indices’. Centre for European Economic Research, Discussion Paper 03-10.
87. Schröder, M. 2004. ‘The performance of socially responsible investments: investment funds and indices’. Financial Markets and Portfolio Management, 18:2, 122–142.
88. Schröder, M. 2007. ‘Is there a difference? The performance characteristics of SRI equity indices’. Journal of Business Finance & Accounting, 34:1–2, 331–348.
89. Sercu, P. 1980. ‘A generalisation of the international asset pricing model’. DTEW Research Report 8002.
90. Sharfman, M. and Fernando, C.S. 2008. ‘Environmental risk management and the cost of capital’. Strategic Management Journal, 29:6, 569–592.
91. Sharpe, W.F. 1964. ‘Capital asset prices: a theory of market equilibrium under conditions of risk’. The Journal of Finance, 19:3, 425–442.
92. Sharpe, W.F. 1966. ‘Mutual fund performance’. Journal of Business, 39:1, 119–138.
93. Solnik, B.H. 1974. ‘An equilibrium model of the international capital market’. Journal of Economic Theory, 8:4, 500–524.
94. Sparkes, R. and Cowton, C.J. 2004. ‘The maturing of socially responsible investment: a review of the developing link with corporate social responsibility’. Journal of Business Ethics, 52:1, 45–57.
95. Statman, M. 2000. ‘Socially responsible mutual funds (corrected)’. Financial Analysts Journal, 56:3, 30–39.
96. Statman, M. 2005. ‘Socially responsible indexes: composition and performance’. Available at: http://ssrn.com/abstract=705344.
97. Stittle, J. 2002. ‘UK corporate ethical reporting – a failure to inform: some evidence from company annual reports’. Business and Society Review, 107:3, 349–370.
98. Story, J. and Neves, P. 2015. When corporate social responsibility (CSR) increases performance: exploring the role of intrinsic and extrinsic CSR attribution’. Business Ethics: A European Review, 24:2, 111–124.
99. Stulz, R. 1981. ‘A model of international asset pricing’. Journal of Financial Economics, 9:4, 383–406.
100. Sullivan, R. and Mackenzie, C. 2006. ‘Shareholder activism on social, ethical and environmental issues’. In Sullivan, R. and Mackenzie, C. (Eds.), Responsible Investment: 149–157. Bradford: Greenleaf.
101. Thaler, R. 2012. The Winner's Curse: Paradoxes and Anomalies of Economic Life. Princeton: Princeton University Press.
102. Torre, B. and García, M. 2001. ‘Investment companies as alternative institutions to traditional banks: an empirical analysis of Spanish reaction to the mutual funds market’. Working Paper, SSRN series.
103. United Nations (UN). 2015. ‘United Nations Global Compact’. Available at https://www.unglobalcompact.org/ (accessed 1 August 2016).
104. Valor, C. and De La Cuesta, M. 2007. ‘An empirical analysis of the demand of Spanish religious groups and charities for socially responsible investments’. Business Ethics: A European Review, 16:2, 175–190.
105. Vermeir, W., Van de Velde, E. and Corten, F. 2005. Sustainable and responsible performance’. The Journal of Investing, 14:3, 94–101.
106. Wagner, M. and Blom, J. 2011. ‘The reciprocal and non-linear relationship of sustainability and financial performance’. Business Ethics: A European Review, 20:4, 418–432.
107. Waygood, S., Erler, S., Wehrmeyer, W. and Jeswani, H. 2006. ‘Integrated investment analysis: investment implications of the REACH regulation’. In Sullivan, R. and Mackenzie, C. (Eds.), Responsible Investment: 62–80. Bradford: Greenleaf.
108. Wen, S. 2009. ‘Institutional investor activism on socially responsible investment: effects and expectations’. Business Ethics: A European Review, 18:3, 308–333.
109. Wood, D.J. and Jones, R.E. 1995. ‘Stakeholder mismatching: a theoretical problem in empirical research on corporate social performance’. The International Journal of Organizational Analysis, 3:3, 229–267.