Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-28T05:47:39.999Z Has data issue: false hasContentIssue false
  • English
  • Français

Making a Difference or Making a Statement? Finance Research and Socially Responsible Investment

Published online by Cambridge University Press:  23 January 2015

Pietra Rivoli
Get access Rights & Permissions [Opens in a new window]

Abstract:

What does socially responsible investing (SRI) accomplish for investors and for society? Proponents of SRI claim that the practice yields competitive portfolio returns for investors, while at the same time achieving better outcomes for society at large. Skeptics view SRI as ineffective at best and ill-conceived marketing hype at worst. My objective in this paper is to apply mainstream finance research findings to the question of whether SRI may be expected to lead to superior social outcomes. I conclude that under the perfect markets assumptions underlying most finance theory, SRI will not affect social outcomes. However, given well documented imperfections in equity markets, the claim that SRI “makes a difference” to society is a reasonable one that is consistent with current theoretical and empirical research in finance.

Type
Research Article
Information
Business Ethics Quarterly , Volume 13 , Issue 3 , July 2003 , pp. 271 - 287
Copyright
Copyright © Society for Business Ethics 2003

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Angel, James J., and Rivoli, Pietra. 1997. “Does Socially Responsible Investing Impose a Cost Upon the Firm? A Theoretical Examination.” The Journal of Investing 6(4): 57–61.CrossRefGoogle Scholar
Bailey, Warren. 1994. “Risk and Return on China’s New Stock Markets: Some Preliminary Evidence.” Pacific-Basin Finance Journal 2: 243–260.CrossRefGoogle Scholar
Bailey, Warren, Chung, Y. Peter, and Kang, Jun-koo. 1999. “Foreign Ownership Restrictions and Equity Price Premiums: What Drives the Demand for Cross-Border Investments?” Journal of Financial and Quantitative Analysis 34: 489–512.CrossRefGoogle Scholar
Bailey, Warren, and Jagtiani, Julapa. 1994. “Foreign Ownership Restrictions and Stock Prices in the Thai Capital Market.” Journal of Financial Economics 36: 57–87.CrossRefGoogle Scholar
Bekaert, Geert, and Harvey, Campbell R.. 2000. “Foreign Speculators and Emerging Equity Markets.” Journal of Finance 55(2): 565–613.CrossRefGoogle Scholar
Boatright, John R. 1999. Ethics in Finance (Oxford: Blackwell Publishers).Google Scholar
Brennan, Michael J., and Subrahmanyam, Avanidhar. 1996. “Market Microstructure and Asset Pricing: On the Compensation for Illiquidity in Stock Returns.” Journal of Financial Economics 41: 441–464.CrossRefGoogle Scholar
Browning, E. S. 2000. “Index Changes Can Drive Stocks (and Investors) Wild.” The Wall Street Journal, July 26: C1.Google Scholar
Chan, Louis K. C., and Lakonishok, Josef. 1993. “Institutional Trades and Intraday Stock Price Behavior.” Journal of Financial Economics 33(1): 173–199.CrossRefGoogle Scholar
Cogan, Douglas C. (ed.) 2000. Tobacco Divestment and Fiduciary Responsibility: A Legal and Financial Analysis (Washington, D.C.: Investor Responsibility Research Center).Google Scholar
diBartolomeo, Dan, and Kurtz, Lloyd. 2000. “Managing Risk Exposures of Socially Screened Portfolios.” Working Paper, Northfield Information Services, Boston, Mass.Google Scholar
Domowitz, Ian, Glen, Jack, and Madhaven, Ananth. 1997. “Market Segmentation and Stock Prices: Evidence from an Emerging Market.” Journal of Finance 52(3): 1059–1085.CrossRefGoogle Scholar
Errunza, Vihang R., and Losq, Etienne. 1989. “Capital Flow Controls, International Asset Pricing, and Investors’ Welfare: A Multi-Country Framework.” Journal of Finance 44(4): 1025–1038.Google Scholar
Eun, Cheol S., and Janakiramanan, S.. 1986. “A Model of International Asset Pricing with a Constraint on the Foreign Equity Ownership.” Journal of Finance 41(4): 897–914.CrossRefGoogle Scholar
Ewing, Terzah. 2000. “Remaking Russell Shakes Up Small Stocks.” The Wall Street Journal, June 26: C1.Google Scholar
Foerster, Stephen R., and Karolyi, G. Andrew. 1999. “The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States.” Journal of Finance 54(3): 981–1013.CrossRefGoogle Scholar
Foerster, Steve, Karolyi, Andrew, and Weiner, David. 1999. “Capital Rewards: The Lure of U.S. Exchanges.” Ivey Business Journal 63(4): 62–66.Google Scholar
Guerard, Jon B. Jr. 1997. “Additional Evidence on the Cost of Being Socially Responsible in Investing.” Journal of Investing 6(4): 31–35.CrossRefGoogle Scholar
Henry, Peter Blair. 2000. “Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices.” Journal of Finance 55(2): 529–564.CrossRefGoogle Scholar
Hietala, Pekka T. 1989. “Asset Pricing in Partially Segmented Markets: Evidence from the Finnish Market.” Journal of Finance 44(3): 697–718.CrossRefGoogle Scholar
Investor Responsibility Research Center. 2000. Social Policy Shareholder Resolutions in 1999: Issues, Votes, and Views of Institutional Investors. Washington, D.C.: IRRC.Google Scholar
Investor Responsibility Research Center. 2001. Social Policy Shareholder Resolutions in 2000: Issues, Votes, and Views of Institutional Investors. Washington, D.C.: IRRC.Google Scholar
Kadlec, Gregory B., and McConnell, John J.. 1994. The Effect of Market Segmentation and Illiquidity on Asset Prices: Evidence from Exchange Listings.” Journal of Finance 49(2): 611–636.CrossRefGoogle Scholar
Kaul, Aditya, Mehrotra, Vikas, and Morck, Randall. 2000. “Demand Curves for Stock Do Slope Down: New Evidence from and Index Weights Adjustment.” Journal of Finance 55(2): 893–912.CrossRefGoogle Scholar
Keim, Donald, and Madhava, Ananth. 1996. “The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects.” Review of Financial Studies 9(1): 1–36.CrossRefGoogle Scholar
Loderer, Claudio, Cooney, John W., and Van Drunen, Leonard D.. 1991. “The Price Elasticity of Demand for Common Stock.” Journal of Finance 46(2): 621–651.CrossRefGoogle Scholar
Loeb, Thomas. 1983. “Trading Cost: The Critical Link Between Investment Information and Results.” Financial Analysts Journal 39: 39–44.CrossRefGoogle Scholar
Luck, Christopher, and Pilotte, Nancy. 1993. “Domini Social Index Performance.” Journal of Investing 2(3): 22–31.CrossRefGoogle Scholar
Merton, Robert C. 1987. “A Simple Model of Capital Market Equilibrium with Incomplete Information.” Journal of Finance 42(3): 483–510.CrossRefGoogle Scholar
Miller, Edward M. 1977. “Risk, Uncertainty, and Divergence of Opinion.” Journal of Finance 32(4): 1151–1168.CrossRefGoogle Scholar
Repetto, Robert, and Austin, Duncan. 2000. Pure Profit: The Financial Implications of Environmental Performance. Washington, D.C.: World Resources Institute.Google Scholar
Sharpe, William F. 1964. “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk.” Journal of Finance 19(3): 425–442.Google Scholar
Shleifer, Andrei. 1986. “Do Demand Curves for Stocks Slope Down?” Journal of Finance 41(3): 579–590.CrossRefGoogle Scholar
Statman, Meir. 2000 “Socially Responsible Mutual Funds.” Financial Analyst’s Journal 56(3): 30–39.CrossRefGoogle Scholar
Stoll, Hans, and Whaley, Robert. 1983. “Transactions Costs and the Small Firm Effect.” Journal of Financial Economics 12: 57–80.CrossRefGoogle Scholar
Teoh, Siew Hong, Welch, Ivo, and Wazzan, C. Paul. 1999. “The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott.” Journal of Business 72(1): 35–87.CrossRefGoogle Scholar
Wall, Larry D. “1995. “Some Lessons from Basic Finance for Effective Socially Responsible Investing.” Economic Review 8: 1–12.Google Scholar