Socially Responsible Finance and Investing

The foundations of finance developed over the past five decades start with the premise that maximizing shareholder wealth is the best goal and that an outcome of this goal was that it would optimize social benefits over the long run. More recently, the concept of social responsibility in finance has gained momentum. Socially responsible finance includes responsibility from the corporate side (corporate social responsibility) as well as the investor side (socially responsible investing) of the capital markets. This volume discusses many very recent aspects as well, like moral hazard and the most recently important concept, "too big to fail".

H. KENT BAKER, PhD, CFA, CMA, is University Professor of Finance and Kogod Research Professor at the Kogod School of Business at American University, Washington, D.C. As one of the most prolific finance academics, he has published 16 books, and more than 150 refereed articles in such publications as the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Financial Analysts Journal, Journal of Portfolio Management, and Harvard Business Review. He has consulting and training experience with more than 100 organizations. Professor Baker holds a BSBA from Georgetown University; MEd, MBA, and DBA degrees from the University of Maryland; and a MA, MS, and two PhDs from American University. He also holds CFA and CMA designations.

JOHN R. NOFSINGER is a Professor of Finance and Nihoul Faculty Fellow at Washington State University. He is one of the world's leading experts in behavioral finance and is a frequent speaker on this topic and socially responsible finance at investment management conferences, universities, and academic conferences. Professor Nofsinger has also published more than 50 articles in scholarly and practitioner journals. His research has appeared in the Journal of Finance, Journal of Business, Journal of Financial and Quantitative Analysis, Journal of Corporate Finance, Journal of Banking and Finance, Financial Management, Financial Analysts Journal, Journal of Behavioral Decision Making, and many others. Professor Nofsinger earned a PhD in finance from Washington State University.

Acknowledgments ix

1 Socially Responsible Finance and Investing: An Overview 1
H. Kent Baker and John R. Nofsinger

PART I Foundations and Key Concepts 15

2 Stakeholder Analysis 17
Lloyd S. Kurtz

3 Corporate Social Responsibility 39
Heather Elms and Michelle Westermann-Behaylo

4 Business Models and Social Entrepreneurship 55
Michael A. Pirson

5 Fiduciary and Other Legal Duties 69
Benjamin J. Richardson

6 International and Cultural Views 87
Astrid Juliane Salzmann

PART II Finance and Society 109

7 Social, Environmental, and Trust Issues in Business and Finance 111
Christoph F. Biehl, Andreas G. F. Hoepner, and Jianghong Liu

8 Religion and Finance 143
Luc Renneboog and Christophe Spaenjers

9 Social Finance and Banking 161
Olaf Weber and Yayun Duan

10 Managerial Compensation 181
Kose John and Samir Saadi

11 Externalities in Financial Decision Making 197
Janis Sarra

12 Real Estate and Society 213
Piet Eichholtz and Nils Kok

13 Federal Housing Policies and the Recent Financial Crisis 239
Ronnie J. Phillips and Kenneth Spong

14 Predatory Lending and Socially Responsible Investors 257
Christopher L. Peterson

15 Use and Misuse of Financial Secrecy in Global Banking 275
Ingo Walter

PARTIII Corporate Engagement 297

16 Corporate Social Responsibility and Corporate Governance 299
Lorenzo Sacconi

17 Measuring Responsibility to the Different Stakeholders 323
Amir Rubin and Eran Rubin

18 Corporate Philanthropy 341
Janet Kiholm Smith

19 Institutional Investor Activism 359
Diane Del Guercio and Hai Tran

20 Social Activism and Nongovernmental Organizations 381
Jonathan P. Doh and Deborah Zachar

PART IV Socially Responsible Investing 403

21 Corporate Socially Responsible Investments 405
John R. Becker-Blease

22 SRIMutual Fund and Index Performance 425
Halil Kiymaz

23 Performance Implications of SR Investing: Past versus Future 443
Nadja Guenster

24 Money-Flows of Socially Responsible Investment Funds around theWorld 455
Luc Renneboog, Jenke Ter Horst, and Chendi Zhang

Answers to Chapter Discussion Questions 479

Index 503

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