Journal of Financial Economics Vol. 155 2024
Sustainability or performance? Ratings and fund managers’ incentives
open access
Abstract
We explore how mutual fund managers and investors react when the tradeoff between a fund's sustainability and performance becomes salient. Following the introduction of Morningstar's sustainability ratings (the “globe” ratings), mutual funds increased their holdings of sustainable stocks to attract flows. Such sustainability-driven trades, however, underperformed, impairing the funds’ overall performance. Consequently, a tradeoff between sustainability and performance emerged. In the new equilibrium, the globe ratings do not affect investor flows and funds no longer trade to improve their globe ratings.
- DOI
- 10.1016/j.jfineco.2024.103831
- Volume
- 155
- Pages
- 103831
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex