A Tale of Values-Driven and Profit-Seeking Social Investors

Posted: 18 Jul 2010 Last revised: 23 Jan 2015

See all articles by Jeroen Derwall

Jeroen Derwall

Maastricht University - European Centre for Corporate Engagement; Maastricht University - Department of Finance; Utrecht University - School of Economics

Kees C. G. Koedijk

Tilburg University - Department of Finance

Jenke ter Horst

TIAS School for Business and Society

Date Written: July 13, 2010

Abstract

A segmentation of the socially responsible investing (SRI) movement by values-versus-profit orientation solves the puzzling evidence that both socially responsible and controversial stocks produce superior returns. We derive that the segment of values-driven investors, who are willing to sacrifice financial return to derive non-pecuniary utility, is primarily served by “negative” screens that avoid controversial stocks. Consistent with values affecting stock prices, controversial stocks produce anomalously positive returns. The profit-driven segment is best served by specific “positive” screens involving environmental and social issues, which also have produced superior returns. The finding that each segment is served by a different form of SRI explains why the average SRI mutual fund, which adopts a mixture of screens, neither outperforms nor underperforms conventional peers. Our conclusions highlight that different views about SRI that are observed in the literature are complementary in the short run, which begs the question whether SRI should be the only term for different types of social investment practices. However, economic theory predicts that profit-generating opportunities disappear in the long run, which is supported by our empirical analysis over the period 1992-2008.

Keywords: Investor Behavior, Values, Socially Responsible Investing (SRI), Risk, Return

JEL Classification: A13, G11

Suggested Citation

Derwall, Jeroen and Koedijk, Kees G. and ter Horst, Jenke R., A Tale of Values-Driven and Profit-Seeking Social Investors (July 13, 2010). Available at SSRN: https://ssrn.com/abstract=1641131 or http://dx.doi.org/10.2139/ssrn.1641131

Jeroen Derwall

Maastricht University - European Centre for Corporate Engagement ( email )

FEBA
Tongersestraat 53
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.corporate-engagement.com/

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=175

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Kees G. Koedijk (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Jenke R. Ter Horst

TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

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