The impact of mutual funds’ ESG scores on their financial performance during the COVID-19 pandemic. A data envelopment analysis
ISSN: 1472-0701
Article publication date: 12 April 2023
Issue publication date: 3 November 2023
Abstract
Purpose
The purpose of this study is to evaluate the performance of mutual funds during the COVID-19 pandemic with environmental, social and governance (ESG) criteria. The main research question is whether mutual fund performance differs with respect to the level of the mutual fund’s ESG score.
Design/methodology/approach
The data set contains global fund data, and mutual fund performance is analyzed using two types of data envelopment analysis (DEA) models: the DEA portfolio index (DPEI) and the range direction measure (RDM) DEA. Propensity score matching and logistic regression are also applied.
Findings
The results reveal that: nonequity mutual funds present significantly higher performance compared to the performance of equity mutual funds; mutual funds with high ESG scores are associated with significantly higher performance compared to those with low to medium ESG scores; funds with high ESG scores experience higher performance irrespective of their type; and efficiency scores derived from the RDM DEA are significantly higher than those derived from the DPEI model.
Research limitations/implications
Investors, fund managers and market participants can benefit from the findings of this study and improve their investment decision-making process, including more sustainable funds in their portfolios. Regulators and policymakers should further promote or even require the inclusion of more sustainable investments in the financial products offered by institutional investors. The main limitation of the study is related to data availability regarding the ESG score of mutual funds.
Originality/value
To the best of the authors’ knowledge, this is the first study that provides robust evidence in support of a positive association between ESG scores and mutual fund performance during the pandemic-induced crisis applying a DEA methodology.
Keywords
Acknowledgements
The research project was supported by the Hellenic Foundation for Research and Innovation (H.F.R.I.) under the 4th Call for Action “Science and Society” – Emblematic Action – “Interventions to address the economic and social effects of the COVID-19 pandemic” (Project Number: 5098).
Conflicts of interest: The authors declare no potential conflicts of interest with respect to the authorship and/or publication of this article.
Citation
Tampakoudis, I., Kiosses, N. and Petridis, K. (2023), "The impact of mutual funds’ ESG scores on their financial performance during the COVID-19 pandemic. A data envelopment analysis", Corporate Governance, Vol. 23 No. 7, pp. 1457-1483. https://doi.org/10.1108/CG-12-2022-0491
Publisher
:Emerald Publishing Limited
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