Trading for sustainability: how active mutual funds influence corporate social responsibility in the Thai stock market

Abstract

This study examines whether the CSR preferences of active mutual funds, as expressed through portfolio holdings, influence the ESG performance of Thai-listed firms. Using a panel dataset of 178 Thai-listed firms over 2022–2024, this study constructs a holdings-based Fund CSR preference measure following Hwang et al. (2021) and employs panel regression models with firm and year fixed effects and two-way clustered standard errors to identify the holding-based channel, the moderating role of CSR-friendly ownership, the conditioning effect of stock liquidity, and the heterogeneous influence of fund activeness on corporate ESG outcomes. The baseline results confirm that a one standard deviation increase in lagged Fund CSR preference is associated with an approximately 1.96-point increase in firm ESG score in the subsequent year, statistically significant at the 5% level, establishing that the investor preference channel documented in developed markets is also operative in the Thai emerging market context. Conditioning Fund CSR preference on CSR-friendly ownership does not produce a detectable marginal effect, consistent with the absence of formal ESG mandate declarations among Thai mutual funds and the information asymmetry inherent in a less developed institutional engagement infrastructure. In contrast, the interaction between Fund CSR preference and Amihud illiquidity is negative and highly significant at the 1% level, confirming that the holding-based channel is substantially stronger in more liquid stocks, consistent with the exit threat mechanism. The sub-sample analysis by fund activeness reveals that Fund CSR preference is significant only in the Low Activeness group, a pattern better explained by a composition effect whereby passive funds systematically concentrate in larger, better-governed firms, rather than a genuine reversal of the disciplinary mechanism.