Exploring the Role of Corporate Social Responsibility in Mutual Funds Risk Management: An Empirical Analysis of Pakistani Mutual Funds Industry

Abstract

The purpose of this study is to unveil the role of mutual funds’ Corporate Social Responsibility (CSR) in reducing mutual funds risk using data from Pakistani mutual funds industry. Despite the tremendous growth in mutual funds industry, the literature on its different mechanisms like risk management is scarce. The data was collected from a sample that consisted of 258 mutual funds ranging from 2010 to 2019. Using the Fixed Effect Regression model, our analysis showed a negative impact of mutual funds CSR score on mutual funds risk. These findings imply that higher CSR scores are significantly associated with decreased risk, which suggests that socially responsible investing may be able to reduce volatility. Our study controlled for the other mutual funds characteristics like fund age, funds size, expense ratio and fund performance. The results of this study highlight the significance of mutual funds CSR in risk mitigating strategies. It also makes contribution in the growing body of literature on mutual funds CSR and its association with different funds characteristics. The study suggests that investors, mutual funds managers and other stakeholders can reduce the risk by incorporating CSR into their investment strategies.