Religious Belief and Socially Responsible Investing

Abstract

In this study we investigate the effects of social considerations on the investment behavior of mutual fund managers. We propose a measure of investments in corporate social responsibility (CSR) by fund managers that captures the level of a manager’s tendency to invest in firms that engage in socially responsible activities. We find large and persistent cross-sectional variation in mutual funds’ CSR preferences. However, funds with greater CSR preference neither deliver higher returns nor enjoy higher flows. Religious belief, on the other hand, is shown to have a positive impact on a fund manager’s investment in firms with good CSR performance. We show funds that are located in highly religious areas and whose managers graduated from colleges in regions with high religiosity are more likely to invest in high-CSR stocks. Our results are consistent with non-pecuniary “pro-social” motives influencing the investment decisions of money managers.