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Investment Behaviour vs Ethical Expectations - Research

27 August 2014 at 10:58 am
Lina Caneva
Money talks when it comes to acceptability of "sin" companies, a new study reveals.

Lina Caneva | 27 August 2014 at 10:58 am


Investment Behaviour vs Ethical Expectations - Research
27 August 2014 at 10:58 am

Money talks when it comes to acceptability of "sin" companies, a new study reveals.

Companies who make their money in the so called “sin” industries such as the tobacco, alcohol and gaming industries typically receive less attention from institutional investors and financial analysts.

But new research shows social norms and attitudes towards these types of businesses are subject to compromise when their share price looks to be on the rise.

A paper from the University of Toronto's Rotman School of Management found that institutional shareholdings and analysts' coverage of sin firms were low when firm performance was low but went up with rising performance expectations.

That suggests that market participants may ignore social norms and standards with the right financial reward.

"This is a way to test the trade-off between people's non-financial and financial incentives. The boundary of people's social norms is not a constant," researcher Hai Lu, an Associate Professor of Accounting at the Rotman School said.

Prof. Lu co-wrote the paper with two former Rotman PhD students, McMaster University's Kevin Veenstra and Yanju Liu, now with Singapore Management University.

The paper sheds light on why there can be a disconnect between the investment behaviour of Wall St. and the ethical expectations of ordinary people.

The report said it also suggests a worrisome implication that compromising one's ethical values in the face of high financial rewards can become a social norm in itself.

The paper also finds that strong social norms still have an influence over people's behaviour. If social norms are strong enough and the price of ignoring them is high, this may act as a disincentive to disregard them in favour of other benefits.

The authors say this is the first study to examine whether the social acceptability of sin stocks can vary with financial performance.  

They compared consumption and attitudinal data with information on sin firm stocks, analysts’ coverage and levels of institutional investment.

The study received financial support from the Michael Lee-Chin Family Institute for Corporate Citizenship at the Rotman School and will be published in Accounting, Organizations and Society.

It is currently online at


Lina Caneva  |  Editor  |  @ProBonoNews

Lina Caneva has been a journalist for more than 35 years. She was the editor of Pro Bono Australia News from when it was founded in 2000 until 2018.

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