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Should funds invest in socially responsible investments during downturns?

Copp, Richard, Kremmer, Michael, & Roca, Eduardo (2010) Should funds invest in socially responsible investments during downturns? Accounting Research Journal, 23(3), pp. 254-266.

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Abstract

Purpose: This paper investigates whether Socially Responsible Investment (SRI) is less sensitive to market downturns than conventional investments; the legal implications for fund managers and trustees; and possible legislative reforms to allow conventional funds more scope to invest in SRI. ----- ----- Design/methodology/approach: The paper uses the market model to estimate betas over the past 15 years for SRI funds and conventional investment funds during economic downturns, as distinct from during more ‘normal’ (non-recessionary) economic times. ----- ----- Findings: The beta risk of SRI, both in Australia and internationally, increases more than that of conventional investment during economic downturns. Traditional fund managers and trustees in Australia are therefore likely to breach their fiduciary duties if they go long - or remain long - in SRI funds during economic downturns, unless relevant legislation is reformed. ----- ----- Research limitations/implications: The methodology assumes that alpha and beta in the market model are constant. This is the subject of ongoing research. Second, it categorises the state of the market into ‘normal’ economic conditions and downturns using dummy variables. More sophisticated techniques could be used in future research. ----- ----- Practical implications: The current law would prevent conventional funds from investing in SRI. If SRI is viewed as socially desirable, useful legislative reforms could include explicitly overriding the common law to allow conventional funds to invest in SRI; introducing a 150% tax deduction or investment allowance for SRI; and allowing SRI sub-funds to obtain Deductible Gift Recipient status from the Australian Tax Office and other taxation authorities. ----- ----- Originality/value: The accurate assessment of risk in SRIs is an area which, despite its serious legal implications, is yet to be subjected to rigorous empirical investigation. Keywords - SRI, market model, GARCH, trust fund, fiduciary duties, market downturns, Australia.

Impact and interest:

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ID Code: 40490
Item Type: Journal Article
Keywords: superannuation, fund management, trust law, trustee, fiduciary duties, market downturn, ethical investment, socially responsible investment
DOI: 10.1108/10309611011092583
ISSN: 1030-9616
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200) > Investment and Risk Management (150205)
Australian and New Zealand Standard Research Classification > LAW AND LEGAL STUDIES (180000) > LAW (180100) > Equity and Trusts Law (180112)
Australian and New Zealand Standard Research Classification > LAW AND LEGAL STUDIES (180000) > LAW (180100) > Taxation Law (180125)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Copyright Owner: Copyright 2010 Emerald Publishing Group
Deposited On: 08 Mar 2011 10:32
Last Modified: 01 Mar 2012 00:31

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