IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v178y2025ics0378426625001438.html

Trading for good: How active mutual funds influence corporate social responsibility through stock trading

Author

Listed:
  • Jiao, Jie
  • Tong, Lin
  • Yan, An

Abstract

We hypothesize that active mutual funds can promote corporate social responsibility (CSR) in their portfolio firms through stock trading activities. Leveraging mutual fund family mergers to identify causal effects, we find that a firm’s CSR commitment increases when its mutual funds exhibit stronger CSR preferences through trading. This effect is stronger when mutual fund investors are more active or when the firm’s stock exhibits higher liquidity. Additionally, our results suggest that the trading channel complements non-trading mechanisms through which active mutual funds influence firm CSR.

Suggested Citation

  • Jiao, Jie & Tong, Lin & Yan, An, 2025. "Trading for good: How active mutual funds influence corporate social responsibility through stock trading," Journal of Banking & Finance, Elsevier, vol. 178(C).
    • Handle: RePEc:eee:jbfina:v:178:y:2025:i:c:s0378426625001438
    DOI: 10.1016/j.jbankfin.2025.107523
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426625001438
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2025.107523?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Chen, Tao & Dong, Hui & Lin, Chen, 2020. "Institutional shareholders and corporate social responsibility," Journal of Financial Economics, Elsevier, vol. 135(2), pages 483-504.
    2. ., 2001. "Corporate Governance in Islamic Banking," Chapters, in: Islamic Banking, chapter 7, Edward Elgar Publishing.
    3. Henri Servaes & Ane Tamayo, 2013. "The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness," Management Science, INFORMS, vol. 59(5), pages 1045-1061, May.
    4. Zhichuan Frank Li & Saurin Patel & Srikanth Ramani, 2021. "The Role of Mutual Funds in Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 174(3), pages 715-737, December.
    5. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    6. Samuel M. Hartzmark & Abigail B. Sussman, 2019. "Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows," Journal of Finance, American Finance Association, vol. 74(6), pages 2789-2837, December.
    7. Jiao, Yawen, 2010. "Stakeholder welfare and firm value," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2549-2561, October.
    8. Roland Bénabou & Jean Tirole, 2010. "Individual and Corporate Social Responsibility," Economica, London School of Economics and Political Science, vol. 77(305), pages 1-19, January.
    9. Jeroen Derwall & Nadja Guenster & Rob Bauer & Kees Koedijk, 2005. "The Eco-Efficiency Premium Puzzle," Financial Analysts Journal, Taylor & Francis Journals, vol. 61(2), pages 51-63, March.
    10. Yin‐hua Yeh & Tsun‐siou Lee & Tracie Woidtke, 2001. "Family Control and Corporate Governance: Evidence from Taiwan," International Review of Finance, International Review of Finance Ltd., vol. 2(1‐2), pages 21-48.
    11. Alex Edmans, 2009. "Blockholder Trading, Market Efficiency, and Managerial Myopia," Journal of Finance, American Finance Association, vol. 64(6), pages 2481-2513, December.
    12. Alex Edmans & Gustavo Manso, 2011. "Governance Through Trading and Intervention: A Theory of Multiple Blockholders," The Review of Financial Studies, Society for Financial Studies, vol. 24(7), pages 2395-2428.
    13. Hong, Harrison & Kostovetsky, Leonard, 2012. "Red and blue investing: Values and finance," Journal of Financial Economics, Elsevier, vol. 103(1), pages 1-19.
    14. Krüger, Philipp, 2015. "Corporate goodness and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 115(2), pages 304-329.
    15. K. J. Martijn Cremers & Antti Petajisto, 2009. "How Active Is Your Fund Manager? A New Measure That Predicts Performance," The Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3329-3365, September.
    16. Karl V. Lins & Henri Servaes & Ane Tamayo, 2017. "Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis," Journal of Finance, American Finance Association, vol. 72(4), pages 1785-1824, August.
    17. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    18. Teoh, Siew Hong & Welch, Ivo & Wazzan, C Paul, 1999. "The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott," The Journal of Business, University of Chicago Press, vol. 72(1), pages 35-89, January.
    19. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    20. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
    21. Glen Dowell & Stuart Hart & Bernard Yeung, 2000. "Do Corporate Global Environmental Standards Create or Destroy Market Value?," Management Science, INFORMS, vol. 46(8), pages 1059-1074, August.
    22. Dyck, Alexander & Lins, Karl V. & Roth, Lukas & Wagner, Hannes F., 2019. "Do institutional investors drive corporate social responsibility? International evidence," Journal of Financial Economics, Elsevier, vol. 131(3), pages 693-714.
    23. Deng, Xin & Kang, Jun-koo & Low, Buen Sin, 2013. "Corporate social responsibility and stakeholder value maximization: Evidence from mergers," Journal of Financial Economics, Elsevier, vol. 110(1), pages 87-109.
    24. Martijn Cremers & Antti Petajisto, 2006. "How Active is Your Fund Manager? A New Measure That Predicts Performance," Yale School of Management Working Papers amz2370, Yale School of Management, revised 01 May 2009.
    25. Jie (Jack) He & Jiekun Huang, 2017. "Product Market Competition in a World of Cross-Ownership: Evidence from Institutional Blockholdings," The Review of Financial Studies, Society for Financial Studies, vol. 30(8), pages 2674-2718.
    26. Yin-hua Yeh & Tsun-siou Lee & Tracie Woidtke, 2001. "Family Control and Corporate Governance: Evidence from Taiwan," International Review of Finance, International Review of Finance Ltd., vol. 2(1&2), pages 21-48.
    27. Caroline Flammer, 2015. "Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach," Management Science, INFORMS, vol. 61(11), pages 2549-2568, November.
    28. Parrino, Robert & Sias, Richard W. & Starks, Laura T., 2003. "Voting with their feet: institutional ownership changes around forced CEO turnover," Journal of Financial Economics, Elsevier, vol. 68(1), pages 3-46, April.
    29. Jędrzej Białkowski & Laura T. Starks, 2016. "SRI Funds: Investor Demand, Exogenous Shocks and ESG Profiles," Working Papers in Economics 16/11, University of Canterbury, Department of Economics and Finance.
    30. Arno Riedl & Paul Smeets, 2017. "Why Do Investors Hold Socially Responsible Mutual Funds?," Journal of Finance, American Finance Association, vol. 72(6), pages 2505-2550, December.
    31. Lewellen, Katharina & Lowry, Michelle, 2021. "Does common ownership really increase firm coordination?," Journal of Financial Economics, Elsevier, vol. 141(1), pages 322-344.
    32. Martijn Cremers & Antti Petajisto, 2006. "How Active is Your Fund Manager? A New Measure That Predicts Performance," Yale School of Management Working Papers amz2370, Yale School of Management, revised 01 May 2009.
    33. Baruch Lev & Christine Petrovits & Suresh Radhakrishnan, 2010. "Is doing good good for you? how corporate charitable contributions enhance revenue growth," Strategic Management Journal, Wiley Blackwell, vol. 31(2), pages 182-200, February.
    34. Harrison Hong & Jeffrey D. Kubik & Jose A. Scheinkman, 2012. "Financial Constraints on Corporate Goodness," NBER Working Papers 18476, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hans B. Christensen & Luzi Hail & Christian Leuz, 2021. "Mandatory CSR and sustainability reporting: economic analysis and literature review," Review of Accounting Studies, Springer, vol. 26(3), pages 1176-1248, September.
    2. Li, Chengcheng & Wang, Xiaoqiong, 2022. "Local peer effects of corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 73(C).
    3. Zhichuan Frank Li & Saurin Patel & Srikanth Ramani, 2021. "The Role of Mutual Funds in Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 174(3), pages 715-737, December.
    4. Dai, Rui & Liang, Hao & Ng, Lilian, 2021. "Socially responsible corporate customers," Journal of Financial Economics, Elsevier, vol. 142(2), pages 598-626.
    5. Jie Jiao & Yanyang Wang & An Yan, 2024. "Corporate social responsibility and investor relationship management," The Financial Review, Eastern Finance Association, vol. 59(3), pages 657-685, August.
    6. Liu, Xianda & Hou, Wenxuan & Main, Brian G.M., 2022. "Anti-market sentiment and corporate social responsibility: Evidence from anti-Jewish pogroms," Journal of Corporate Finance, Elsevier, vol. 76(C).
    7. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    8. Samuel B. Bonsall IV & Babak Mammadov & Blerina Bela Zykaj, 2025. "Institutional Investors with Disciplinary History and CSR Behavior of Investee Firms," Journal of Business Ethics, Springer, vol. 200(4), pages 813-840, September.
    9. Wang, Zhenkun & Lu, Weijie & Liu, Min, 2021. "Corporate social responsibility overinvestment in mergers and acquisitions," International Review of Financial Analysis, Elsevier, vol. 78(C).
    10. Mavruk, Taylan, 2025. "Local CSR, local ownership and firm value," International Review of Financial Analysis, Elsevier, vol. 102(C).
    11. Shackleton, Mark & Yao, Yaqiong & Zuo, Ziran, 2025. "Corporate social responsibility and insider horizon," Journal of Corporate Finance, Elsevier, vol. 90(C).
    12. Shackleton, Mark & Yan, Jiali & Yao, Yaqiong, 2022. "What drives a firm's ES performance? Evidence from stock returns," Journal of Banking & Finance, Elsevier, vol. 136(C).
    13. Tamas Barko & Martijn Cremers & Luc Renneboog, 2022. "Shareholder Engagement on Environmental, Social, and Governance Performance," Journal of Business Ethics, Springer, vol. 180(2), pages 777-812, October.
    14. Thomas J. Chemmanur & Dimitrios Gounopoulos & Panagiotis Koutroumpis & Yu Zhang, 2022. "CSR and Firm Survival: Evidence from the Climate and Pandemic Crises," Working Papers 935, Queen Mary University of London, School of Economics and Finance.
    15. Chuan Yang Hwang & Sheridan Titman & Ying Wang, 2022. "Investor Tastes, Corporate Behavior, and Stock Returns: An Analysis of Corporate Social Responsibility," Management Science, INFORMS, vol. 68(10), pages 7131-7152, October.
    16. Amin, Abu & Chourou, Lamia & Kamal, Syed & Malik, Mahfuja & Zhao, Yang, 2020. "It’s who you know that counts: Board connectedness and CSR performance," Journal of Corporate Finance, Elsevier, vol. 64(C).
    17. Jun Duanmu & Qiping Huang & Yongjia Li & Garrett A. McBrayer, 2021. "Can hedge funds benefit from corporate social responsibility investment?," The Financial Review, Eastern Finance Association, vol. 56(2), pages 251-278, May.
    18. Fiordelisi, Franco & Galloppo, Giuseppe & Lattanzio, Gabriele & Paimanova, Viktoriia, 2023. "Looking at socially responsible investment strategies through the lenses of the global ETF industry," Journal of International Money and Finance, Elsevier, vol. 137(C).
    19. Vivek Astvansh & Tao Chen & Jimmy Chengyuan Qu, 2023. "The social cost of investor distraction: Evidence from institutional cross-blockholding," PLOS ONE, Public Library of Science, vol. 18(12), pages 1-26, December.
    20. Chowdhury, Hasibul & Hodgson, Allan & Hasan, Mostafa Monzur, 2022. "Does a competitive external labour market affect corporate social responsibility? Evidence from industry tournament incentives," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:178:y:2025:i:c:s0378426625001438. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.