|
July 01, 2003
Pension Funds and Mutual Funds Influence Their Holdings Differently
by William Baue
Academic studies discern between how pension funds and mutual funds wield influence as
institutional shareowners, but the studies lack methods sophisticated enough to evaluate the
effects of SRI.
SocialFunds.com --
Are all institutional investors alike in terms of their influence on how companies are managed?
No, according to three articles on the subject published in the last few years in the Academy of Management Journal (AMJ).
AMJ is a peer-reviewed academic periodical on corporate management published every other month by
Pace University.
 The latest study, published in the
April-May 2003 issue of AMJ, focuses on the internationalization, or corporate expansion into the
global marketplace, of 197 S&P 1500 firms, based on data collected in 1996. The researchers found
that pension and mutual funds favored internationalization for significantly different reasons:
whereas mutual funds support internationalization for short-term profits, pension funds favor it
for long-term stability, especially in high-tech industries.
"Institutional investors
are, emphatically, not all alike," said University of Oklahoma Professor Robert E. Hoskisson, a
co-author of the study. "Our research reveals clearly that public pension funds approach investing
with a longer time horizon than that of professional investment funds, such as mutual funds and
investment banks."
"In general, public pension funds are much more likely than mutual
funds or investment banks to support the heavy lifting that drives long-term progress not just for
an individual company but for the greater society," added Professor Laszlo Tihanyi, a University of
Oklahoma colleague who co-authored the study. There were two other co-authors, University of
Oklahoma Professor Richard A. Johnson and Arizona State University Professor Michael A.Hitt.
The paper considered internationalization as a desirable development in general, as it
correlates positively with firm performance and risk-adjusted returns. The study also mentioned
several negative consequences of internationalization.
Interestingly, the study did not
list any social or environmental impacts amongst the negative implications. Professors Tihanyi and
Hoskisson told SocialFunds.com that it is very difficult to isolate and measure social and
environmental considerations in academic studies, so they did not include these variables in their
parameters.
Another study, published in the August-September 2002 issue of AMJ, found
that pension funds favor internal innovation through R&D, while mutual funds prefer external
innovation through business acquisitions. Based on the survey of 234 companies between 1985 and
1991, the study also found that both pension and mutual funds prefer firms that have independent
board members who own company stock. It also found, though, that pension funds tend to give more
support than mutual funds to "inside" board members who own company stock.
Where do SRI
mutual funds fit into this equation? Certainly not lumped directly with mainstream mutual funds,
Prof. Hoskisson admitted to SocialFunds.com, as SRI fund managers tend to have a much longer
horizon than most mutual funds. In this sense, SRI funds align closer to pension funds. However,
neither of these papers discerned SRI funds from the overall universe of mutual funds studied,
though both Prof. Hoskisson and Prof. Tihanyi told SocialFunds.com that such a distinction sounded
like a promising research question.
The trick with such research is tracking social
issues, according to co-author Prof. Richard Johnson. He also co-wrote a 1999 AMJ article that
used the same approach to study the influence of these two types of institutional investors on
corporate social performance (CSP).
Prof. Johnson separated five dimensions of CSP
tracked by KLD Research & Analytics into two groups. He combined "product quality" and
"environment" into a single "product quality" group, and "community," "women and minorities," and
"employee relations" into a "people" group.
The study, which examined 1993 data on 252
companies, found a relationship existed between pension funds and CSP, but no found such
relationship existed for mutual funds. It also found that the product quality dimension of CSP was
linked to companies where top management owned equity in the company. No such link was found for
the people dimension.
Prof. Johnson told SocialFunds.com that objective standards such
as ISO 14000 certification make it possible for academic researchers to isolate environmental and
product quality dimensions. However, Prof. Johnson knows of no such objective standards for
isolating social dimensions, a deficiency that hampers academic research on socially responsible
investing.
©
SRI World Group, Inc. All Rights Reserved.
Top
| 
