Performance of Socially Responsible Stocks Portfolios – The Impact of Global Financial Crisis
AbstractFor the effective and better implementation of CSR law, development of SRI market in the investment world is essential. Unless the investors turn socially responsible, CSR principles cannot be enforced in practice. This paper examines whether the companies that are socially responsible are performing better than general companies in terms of risk, return and various risk-adjusted measures during pre-crisis, crisis and post-crisis periods. We find that despite having higher risk, socially responsible stocks portfolios generated significantly higher returns and hence outperformed other portfolios on the basis of all risk-adjusted measures, as well as net selectivity returns during crisis period. The results uphold even with the use of Fama-French three factor model for estimating excess returns. Besides augmenting existing literature, our results clearly corroborate the fact that investors can derive benefits by investing in socially responsible companies (especially in crisis period). The study supports the view that socially responsible products can be used as a safe investment vehicle by investors during adversity. Therefore, regulators, policy makers and mutual funds should construct and make available various socially responsible investment products to initiate the movement of socially responsible investing in India.
Amenc, N., Sourd, L. (2008). Socially Responsible Investment Performance in France, available at http://docs.edhecrisk.com/mrk/000000/Press/ EDHEC_Position_Paper%20 _SRI _Performance_France.pdf (accessed January 30, 2015).
Amenc, N., Sourd, L. (2010). The Performance of Socially Responsible Investment and Sustainable Development in France: An Update after the Financial Crisis, available at http://facultyresearch.edhec.com/servlet/com.univ.collaboratif.utils.LectureFichiergw?ID_FICHIER=1328885973639 (accessed February 4, 2015).
Bhanumurthy, K. V., Bhandari, V., Pandey, V. (2014). Does the Indian Stock Market encourage Socially Responsible Companies, Manthan Journal of Commerce and Management, Vol. 01, No. 01, p. 1-34.
Hamilton, S., Jo, H., Statman, M. (1993). Doing well while doing good? The Investment Performance of Socially Responsible Mutual Funds, Financial Analysts Journal, p. 62-66.
Hume, S. R., Larkin, A. (2008). The Performance of Socially Responsible Investing, available at http://www.crrconference.org (accessed 5 January 2014).
Kempf, A., Osthoff, P. (2007). The Effect of Socially Responsible Investing on Portfolio Performance, European Financial Management, Vol. 13, p. 908-22.
King, A. A., Lenox, M. J. (2001). Does it really pay to be Green: An Empirical Study of Firm Environmental and Financial Performance, Journal of Industrial Ecology, Vol. 05, p. 105 -116.
RBC Global Asset Management (2007). Does Socially Responsible Investing hurt Investment Returns, available at http://funds.rbcgam.com/_assets-custom/pdf/RBC-GAM-does-SRI-hurt-investment-returns.pdf (accessed January 20, 2013).
Statman, M. (2000). Socially Responsible Mutual Funds, Financial Analysts Journal, Vol. 56 No. 03, p. 30-39.
Tripathi, V., Bhandari, V. (2012). Green is good in Indian Stock Market, Colombo Business Journal, Vol. 03, No. 02, p. 27 - 45.
Tripathi, V., Bhandari, V. (2014). Socially Responsible Stocks can Bolster CSR Law, Hindustan Times, 23 April 2014, p. 12.
Tripathi, V., Bhandari, V. (2015a). Socially Responsible Stocks: A Boon for Investors in India, Journal of Advances in Management Research (Forthcoming), Vol. 12 No. 02.
Tripathi, V., Bhandari, V. (2015b). Performance of Socially Responsible Portfolios – Do Economic Conditions Matter, Journal of Commerce & Accounting Research, Vol. 04 No. 01, p. 46-62.
Tripathi, V., Bhandari, V. (2015c). Do Ethical Funds underperform Conventional Funds? Empirical Evidence from India, Working Paper.
Tripathi, V., Bhandari, V. (2015d). Catalyzing Social Responsibility in Companies by Indian Stock Market, Working Paper.
Tripathi, V., Bhandari, V. (2015). Socially Responsible Investing – An Emerging Concept in Investment Management, Fortune Business Review, Vol. 03 No. 04, p. 16-30.
Tripathi, V., Bhandari, V. (2015). Socially Responsible Investing: An Insight and Future Prospects, Serial Publications, New Delhi.