How do the size and independence of the board of trustees affect the financial and sustainable performance of socially responsible mutual funds?

Abstract

In this article, I study for first time how the board of trustees’ size and independence influence the financial performance and sustainability scores of socially responsible (SR) mutual funds. The sample analyzed consists of 99 SR US domestic equity mutual funds existing in the period 2012–2018. The results obtained indicate that funds monitored by boards with a lower number of trustees and an independent chair show lower net expense ratios and better sustainability scores. In addition, smaller boards and a greater percentage of independent trustees are positively associated with the achievement of a better risk-adjusted financial performance. Regarding SR strategies, negative screens are more likely among funds with larger and less independent boards whereas positive screens are more frequent when boards show the opposite characteristics. Another finding indicates that SR funds that implement positive screens present more industry concentrated portfolios that lead to the achievement of a more sustainable performance.