Value similarity and overall performance: trust in responsible investment
TL;DR: In this paper, the authors used an innovative, experimental design to test the effect of value similarity on the trust that investors have in the investment fund and found that funds with similar values are perceived as more trustworthy by investors.
Abstract: Purpose
The purpose of this paper is to show how overall performance can help foster trust in financial institutions. While a climate of mistrust amongst investors and the general public toward financial institutions has developed since the recent turmoil in the financial markets, it is believed that mutual funds adopting the overall performance approach can help recover a climate of trust owing to the implied balance between economic, social and environmental performance. More specifically, overall performance promotes values that are similar to investors’ values and could be used by responsible investment funds if they want to contribute to the restoration of trust in investment funds.
Design/methodology/approach
This paper uses an innovative, experimental design to test the effect of value similarity on the trust that investors have in the investment fund. This effect cannot be studied in isolation, which is why it is compared with the effects of financial performance and ethical labeling on trust.
Findings
The authors find that funds with similar values are perceived as more trustworthy by investors. Consequently, overall performance should be added to fund managers' toolbox if they want to foster trust in their fund. The effect of financial performance on trust applies only when the investor has no other information regarding the fund. As for the ethical labeling of funds, it has no effect on trust.
Research limitations/implications
The findings encourage research that aims to develop a comprehensive approach of integrated overall performance focusing on financial and extra-financial values. Bonnet et al.’s (2016) fieldwork on socio-economic management and Naro and Travaille©’s (2016) work on management controllers provide promising examples in this regard.
Practical implications
Investment funds can acquire an edge by communicating on overall performance and specific values of their target investors. Merely labeling funds as ethical is not sufficient to increase trust.
Social implications
Increasing similarity in values to investors and adopting the overall performance approach in investment funds will increase investors' trust. Trust contributes to social capital and allows societies to create flexible large-scale businesses needed to be competitive in a global environment.
Originality/value
Using an innovative experimental methodology, this paper shows that the underlying factor of overall performance on trust in investment funds is value similarity. It provides researchers and practitioners with insight about the underlying mechanisms of the effect of overall performance on trust.
Citations
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TL;DR: In this paper, the authors investigated the effect of appearance, lifestyle and status similarity on interaction intensity, satisfaction with a banker and repurchase intention, and the moderating effect of client knowledge on the enhancement of customer satisfaction.
Abstract: The objective of this study was to investigate the effect of appearance, lifestyle and status similarity on interaction intensity, satisfaction with a banker and repurchase intention. Also examined was the moderating effect of client knowledge in the enhancement of customer satisfaction with a banker.,A total of 800 questionnaires using the snowball sampling technique were performed to distribute the questionnaires to bank customers at different ethnic community centers in New Zealand. A total of 377 useable questionnaires were collected for further analysis.,The findings indicated that the three types of similarity affect interaction intensity differently. Lifestyle similarity was found to positively influence interaction intensity. The similarity constructs of appearance and status were found to have an insignificant relationship with interaction intensity. The findings show that appearance similarity and interaction intensity are able to enhance customer satisfaction with a banker. Customer satisfaction with a banker has a significant relationship with repurchase intention. Client knowledge influences the degree of interaction intensity and satisfaction with a banker.,The findings of this study help bankers to understand the importance of their similarities with a customer and to design recruitment strategies and training sections to improve customer satisfaction.,This study contributes to the body of knowledge by incorporating interaction intensity, similarity and satisfaction with a bank into the repurchase intention model.
26 citations
TL;DR: In this article , the authors investigate the effects of firm-and governance-specific characteristics on digital trust and firm value and find significant evidence that a firm's profitability decreases whilst its size increases DT.
Abstract:
Purpose
This study aims to investigate the effects of firm- and governance-specific characteristics on digital trust (DT) and firm value. Firm-specific factors include return on assets (ROA), market-to-book ratio (M/B ratio), size and leverage, whilst governance-related factors comprise board size, percentage of female board members, board independence and institutional ownership. All listed US firms over the period of 2011–2016 were analysed in this study.
Design/methodology/approach
This study provides a novel method to empirically measure DT by combining multiple variables to create a combined DT score. The variables include security and privacy scores, security rankings and data breaches, amongst others. Subsequently, a linear regression was performed to evaluate the effect of firm- and governance-specific characteristics on DT, as well as the effect of DT on firm value.
Findings
By using signalling theory, this study finds significant evidence that a firm’s profitability (ROA) decreases whilst its size increases DT. This could be due to the fact that firms with lower DT monetise data more actively, decrease DT and increase short-term profitability. Significant evidence also shows that increasing DT leads to an increase in firm value.
Originality/value
Although numerous studies have been conducted on developing customers’ trust by incorporating corporate social responsibility to improve firm value, the literature remains still on its digital analogue. Therefore, this study extends the knowledge of corporate digital responsibility (CDR) by providing a novel method for calculating DT across industries as an antecedent of CDR. Specifically, it sheds light on how firms can enhance DT by utilising firm- and governance-level factors. This enhanced DT can subsequently increase firm value. The study provides important managerial implications by providing empirical evidence that cybersecurity investments increase firm value. This value increase is related to the rise in shareholder value amongst investors and the increase in the organisation’s consumer perceptions as the latter’s interests are better managed.
5 citations
TL;DR: In this article , the authors show how ethical banks can build a dynamic operation that can provide financial services accomplishing sustainable development pillars objectives considering profitability according to community context, and suggest dynamic frameworks can contribute to developing community by providing suitable financial services by utilizing the appropriate source of finance to be granted for suitable categories and supporting them through integral network considering sustainable development priorities and also contribute in widening responsible fields of investments.
Abstract: The purpose of this research is to show how ethical banks can build a dynamic operation that can provide financial services accomplishing sustainable development pillars objectives considering profitability according to community context. The data of the community were collected by questionnaires which were designed by different faculties’ staff members from 600 respondents representing a random sample of the population of around 35000 residents in Sharkia villages. Cronbach has been utilized to measure data reliability, two dynamic frameworks have been designed; the first determine the main source of different financial services package and main approaches of allocation and investments, second three dynamic frameworks showing how to implement according to Sharkia community context. The research suggested dynamic frameworks can contribute to developing community by providing suitable financial services by utilizing the appropriate source of finance to be granted for suitable categories and supporting them through integral network considering sustainable development pillars and also contribute in widening responsible fields of investments.
References
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TL;DR: In this paper, a definition of trust and a model of its antecedents and outcomes are presented, which integrate research from multiple disciplines and differentiate trust from similar constructs, and several research propositions based on the model are presented.
Abstract: Scholars in various disciplines have considered the causes, nature, and effects of trust. Prior approaches to studying trust are considered, including characteristics of the trustor, the trustee, and the role of risk. A definition of trust and a model of its antecedents and outcomes are presented, which integrate research from multiple disciplines and differentiate trust from similar constructs. Several research propositions based on the model are presented.
16,559 citations
TL;DR: It is argued the importance of directly testing the significance of indirect effects and provided SPSS and SAS macros that facilitate estimation of the indirect effect with a normal theory approach and a bootstrap approach to obtaining confidence intervals to enhance the frequency of formal mediation tests in the psychology literature.
Abstract: Researchers often conduct mediation analysis in order to indirectly assess the effect of a proposed cause on some outcome through a proposed mediator. The utility of mediation analysis stems from its ability to go beyond the merely descriptive to a more functional understanding of the relationships among variables. A necessary component of mediation is a statistically and practically significant indirect effect. Although mediation hypotheses are frequently explored in psychological research, formal significance tests of indirect effects are rarely conducted. After a brief overview of mediation, we argue the importance of directly testing the significance of indirect effects and provide SPSS and SAS macros that facilitate estimation of the indirect effect with a normal theory approach and a bootstrap approach to obtaining confidence intervals, as well as the traditional approach advocated by Baron and Kenny (1986). We hope that this discussion and the macros will enhance the frequency of formal mediation tests in the psychology literature. Electronic copies of these macros may be downloaded from the Psychonomic Society's Web archive at www.psychonomic.org/archive/.
15,041 citations
TL;DR: Using a sample free of survivor bias, this paper showed that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual fund's mean and risk-adjusted returns.
Abstract: Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk-adjusted returns Hendricks, Patel and Zeckhauser's (1993) "hot hands" result is mostly driven by the one-year momentum effect of Jegadeesh and Titman (1993), but individual funds do not earn higher returns from following the momentum strategy in stocks The only significant persistence not explained is concentrated in strong underperformance by the worst-return mutual funds The results do not support the existence of skilled or informed mutual fund portfolio managers PERSISTENCE IN MUTUAL FUND performance does not reflect superior stock-picking skill Rather, common factors in stock returns and persistent differences in mutual fund expenses and transaction costs explain almost all of the predictability in mutual fund returns Only the strong, persistent underperformance by the worst-return mutual funds remains anomalous Mutual fund persistence is well documented in the finance literature, but not well explained Hendricks, Patel, and Zeckhauser (1993), Goetzmann and Ibbotson (1994), Brown and Goetzmann (1995), and Wermers (1996) find evidence of persistence in mutual fund performance over short-term horizons of one to three years, and attribute the persistence to "hot hands" or common investment strategies Grinblatt and Titman (1992), Elton, Gruber, Das, and Hlavka (1993), and Elton, Gruber, Das, and Blake (1996) document mutual fund return predictability over longer horizons of five to ten years, and attribute this to manager differential information or stock-picking talent Contrary evidence comes from Jensen (1969), who does not find that good subsequent performance follows good past performance Carhart (1992) shows that persistence in expense ratios drives much of the long-term persistence in mutual fund performance My analysis indicates that Jegadeesh and Titman's (1993) one-year momentum in stock returns accounts for Hendricks, Patel, and Zeckhauser's (1993) hot hands effect in mutual fund performance However, funds that earn higher
13,218 citations
TL;DR: In this article, the authors used indicators of trust and civic norms from the World Values Surveys for a sample of 29 market economies and found that membership in formal groups is not associated with trust or with improved economic performance.
Abstract: This paper presents evidence that "social capital" matters for measurable economic performance, using indicators of trust and civic norms from the World Values Surveys for a sample of 29 market economies. Memberships in formal groups—Putnam's measure of social capital—is not associated with trust or with improved economic performance. We find trust and civic norms are stronger in nations with higher and more equal incomes, with institutions that restrain predatory actions of chief executives, and with better-educated and ethnically homogeneous populations.
6,894 citations
TL;DR: This article analyzed how mutual fund performance relates to past performance and found evidence that differences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns.
Abstract: This paper analyzes how mutual fund performance relates to past performance. These tests are based on a multiple portfolio benchmark that was formed on the basis of securities characteristics. We find evidence that differences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns.
5,677 citations