Effect of ethical screens is not uniform across firms
January 27, 2008
Angel and Rivoli argue that the impact of ethical screening will be small (< 0.5% per year) if as many as 65% of all investors boycott the shares, but that the cost will rise precipitously if additional investors boycott. The authors estimate a 3% cost if 90% of investors boycott. Furthermore, the authors argue that the impact of a boycott will be greatest on fast-growing firms.
The authors place their study into the perspective that in the past decade, “investors have responded to perceived ethical lapses with both “exit” and “voice” strategies,” also referring to Hirschman’s classic 1970 work on the choice between economic and political responses to poor performance. With their study, they shed light onto the “effectiveness” of ethically motivated investor exit. “These results suggest that investors with social or ethical concerns should selectively employ exit strategies if they wish to influence firm behavior.”
Administrative Editor FSinsight