Social Preferences and Investor Loyalty

This paper shows that social preferences are positively related to investor loyalty. We collect survey and experimental data from clients of two banks that offer socially responsible mutual funds and savings accounts. Socially responsible mutual funds combine financial objectives with social objectives. We find that investors with strong social preferences are more loyal and generate substantially more revenue for these banks. This holds even after controlling for investment knowledge, risk aversion, wealth and gender. We show that the main driver of investor loyalty is social identification and not higher expected returns on SRI funds compared to conventional funds.

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