Publication Type

Journal Article

Version

publishedVersion

Publication Date

11-2022

Abstract

Hedge funds that endorse the United Nations Principles for Responsible Investment (PRI) underperform other hedge funds after adjusting for risk but attract greater investor flows, accumulate more assets, and harvest greater fee revenues. Consistent with an agency explanation, the underperformance is driven by PRI signatories with low environmental, social, and governance (ESG) exposures and is greater for hedge funds with poor incentive alignment. To address endogeneity, we exploit regulatory reforms that enhance stewardship and show that the ESG exposure and relative performance of signatory funds improve post reforms. Our findings suggest that some hedge funds endorse responsible investment to pander to investor preferences.

Keywords

Responsible investing, ESG, Agency problems, Incentive alignment, Greenwashing, Hedge funds, Sustainable finance, Stewardship, Principles for Responsible Investment

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Review of Finance

Volume

26

Issue

6

First Page

1585

Last Page

1633

ISSN

1572-3097

Identifier

10.1093/rof/rfac028

Publisher

Oxford University Press

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Additional URL

https://doi.org/10.1093/rof/rfac028

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