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
Citation
LIANG, Hao; SUN, Lin; and TEO, Song Wee Melvyn.
Responsible hedge funds. (2022). Review of Finance. 26, (6), 1585-1633.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7030
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Additional URL
https://doi.org/10.1093/rof/rfac028