Does being nice have a price? : an investigation on socially responsible funds' performance

Abstract

Are lower returns a cost of socially responsible investing? Financial theory presents opposing views on that account and empirical studies have yielded mixed results. This study evaluates the relative performance of socially responsible investment (SRI) mutual funds and tests whether the difference in financial performance of SRI funds and their benchmarks is related to the intensity of the screens and to the different types of screens employed by SRI funds. The results show that there is a curvilinear relationship between the number of exclusionary screens and fund performance, the use of environmental and alcohol screens is negatively related to fund performance, and the use of gambling and employment screens is positively related to fund performance.